Capitalizing on the Economic Value of Older Adults' Work

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Abstract

Increasing older people's employment rates could reduce the economic pressures of an aging population, and many older adults say they want to delay retirement. Yet, numerous public policies and private practices continue to encourage early retirement. The Urban Institute, with support from the Alfred P. Sloan Foundation, sponsored an October 2007 roundtable to examine the value of older adults' work. Researchers, practitioners, employers, and policymakers discussed the potential supply of and demand for older workers, the benefits of working longer, barriers to continued employment, and policy solutions to encourage work at older ages. This document summarizes the issues and discussion.

Introduction

The first wave of baby boomers reached retirement age this year, reminding us that a future of labor shortages and a drain on Social Security and Medicare finances is getting closer. The rise in the share of retirees in the population, long projected but now upon us, could strain the economy for decades. In just nine years, Social Security is scheduled to begin paying more in benefits than it collects in taxes. If current employment patterns continue, the number of workers for every retired adult will fall from 3.2 to 2.2 between 2010 and 2030, meaning that each worker will have to pay more to support retirees or retirement benefits will have to be cut.

One way to ease the pressure is to encourage adults to delay retirement and stay in the workforce. Perhaps now more than ever, the decision every adult makes to work or retire will have a profound effect on public budgets and the economy. Keeping older adults employed increases tax revenue and may promote economic growth. Working longer also increases people’s Social Security and employersponsored pension benefits and delays their period of dependency on retirement savings. Studies suggest working longer may even improve physical and emotional health.

Adults, who are living longer and healthier lives, say they want to stay in the workplace as they age. Jobs are becoming less physically demanding. Companies are gravitating toward pension plans that don’t penalize employees for working past typical retirement ages, and employees are redefining retirement to include part-time work and self-employment. In response to these trends, employers are talking about ways to accommodate older employees with flexible work options.

In October 2007, the Urban Institute presented a roundtable, sponsored by the Alfred P. Sloan Foundation, to explore the economic value of older adults’ work. Participants included leading researchers, practitioners, and policymakers, as well as employers and stakeholders from the private and public sectors. The group discussed the potential supply of and demand for older workers, the benefits of working longer, barriers to continued employment, and policy solutions to encourage work at older ages. The roundtable began with discussions surrounding labor supply and demand. Session moderators described the characteristics of today’s older workers and identified trends in work at older ages. Participants agreed on the benefits of working longer and the risks of retiring early and identified several reasons adults may want to delay retirement. There was less consensus on whether employers will want to hire and accommodate older workers. While several surveys document employer attitudes concerning older workers, there has been less research on what employers are actually doing to hire and retain older workers. Participants had varied opinions about future trends in demand for older workers. An aging population may tighten labor markets, compelling employers to increase hiring and retention of older workers. Then again, technological advancements and the outsourcing of American jobs to lowwage foreign countries may reduce labor demand and avert potential labor shortages. Until demographic pressures begin to mount, future labor demand will be uncertain.

In the second half of the discussion, participants identified public policies that might discourage work at older ages, including access to early Social Security benefits, early-retirement incentives in traditional pension plans, and the requirement that employer-sponsored health plans pay workers’ insurance claims before Medicare kicks in. Other work disincentives include pension regulations that discourage employers from offering phased retirement and age discrimination laws that may keep employers from giving some of their older workers benefits or flexible work options that others do not receive. Participants also reviewed the costs and benefits of different business practices that would allow for flexible work options. The group concluded by creating a list of possible policy responses and research priorities.

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Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.