(April 2006) Labor force participation rates (LFPR) of U.S. men and women ages 60 and over have been rising for more than a decade now.1 Less well known, however, is that increasing numbers of older workers in the United States are employed full-time. If these two trends continue, they could improve the ability of American workers to save enough for retirement and moderate the labor shortage analysts now anticipate in the wake of the retirement of baby boomers.

LFPR have risen substantially since 1994 both for men ages 62 and over and for women ages 60 and over. (For elderly women, the increase continues a trend that began in 1985.) Figure 1 shows the changes in men's and women's participation rates between ages 60 and 74 for the period 1994-2005.


Figure 1
Changes in Labor Force Participation Rates (LFPR) of U.S. Men and Women Ages 60-74, 1994-2005

1994 2005

Note: None of the change for men ages 60-64 between 1994 and 2005 occurred between ages 60-61. The increase for men ages 62-64 was 17 percent.
Sources: For 2005 data, see U.S. Department of Labor, "Household Data: Annual Averages," accessed at ftp://ftp.bls.gov/pub/special.requests/lf/aat3.txt. 1994 data from Bureau of Labor Statistics, Employment and Earnings (January 1995).


The striking gains between 1995 and 2005 in the percentages of elderly employees who worked full-time are shown in Table 1. The gains affected all elderly age groups as well as both men and women, and have been generally greater the older the age. These increases are surprising because it was widely believed that providing greater opportunity for part-time work to older workers would help increase their LFPR.


Table 1
Percentages of Employed U.S. Men and Women Working Full-Time, By Age Group, 1995 and 2005

Age
Men
Women
1995
2005
% Change
1995
2005
% Change
55-61
91.8
91.8
0
74.6
78.7
6
62-64
77.9
81.2
4
58.9
65.8
12
65
65.4
73.7
13
45.9
56.8
24
66-69
52.3
65.7
26
34.8
49.5
42
70+
44.2
51.7
17
29.6
39.2
32

Source: Author's calculations based on unpublished Bureau of Labor Statistics data, available on request.


Why Have These Changes Occurred?

Economists have offered a number of reasons for the trend toward more elderly working. First, the U.S. economy has been generally better after 1985 than before, thus increasing the demand for labor. In addition, changes in Social Security benefits and rules probably had a considerable effect on labor trends. The 1977 and 1983 amendments to the Social Security Act raised the full-benefit age from 65 to 67 in stages beginning in 2000 and instituted other changes that made delaying retirement more attractive. And limits on the amount workers could earn after age 65 while still receiving benefits were eliminated in 2000. (The greater increase in full-time work for those age 65 and over than for those ages 55-64 provides some evidence of this effect.)2

Some other reasons for the trend:

  • Mandatory retirement was ended for almost all U.S. workers by the Age Discrimination Act of 1986, allowing employees to work later in life.
  • In the mid-1980s, defined-contribution (DC) pension plans—which are mainly funded and managed by employees themselves, giving employees an incentive to keep working—began to replace defined-benefit (DB) plans, which usually contain incentives to retire early. As a result, workers with DC plans retire later than those with DB plans. DC plans now cover a large majority of the wage and salary workers with pension coverage in the United States and place a particularly heavy burden on women because they tend to live longer than men.3
  • Publicity about the threatened solvency of Social Security and the widely reported bankruptcies of many corporations with DB plans in the 1980s and 1990s (especially in the steel, airline, and auto industries) may well have created anxiety about retirement funds, leading many workers to feel that they had better plan to continue full-time employment indefinitely.
  • The extremely rapid growth of health care costs has led to reductions in employer coverage of retirees, providing an additional incentive for workers to keep working full-time.

Implications of More Elderly Working Full-Time

The changes and challenges described in the preceding section are likely to continue to encourage further increases in LFPR and full-time employment, but how much greater they will become is difficult to judge.

Certainly, however, further increases in labor force participation by the elderly would blunt the declines now projected for the U.S. labor force as a whole. Labor force growth declined from an annual average of 2.1 percent in the 1970s and 1980s to about 1.2 percent between 1990 and 2003, and a further decline to an average annual growth of 0.9 percent is now projected through 2014 as the baby-bust cohorts replace the retiring baby boomers.4 But if recent increases in LFPR and full-time employment of older workers continue, the rate of decline in labor force growth would be reduced.

The effects of these trends on Social Security's solvency are more uncertain. Having more elderly workers in the labor force reduces the ratio of beneficiaries to workers and shortens the length of post-work retirement—but the data suggest that elderly workers are not delaying receipt of Social Security retirement benefits until their final exit from the labor force. The mean age at initial receipt of Social Security retirement benefits has fluctuated only slightly around age 63.5 since 1985.5 Thus, the increases in older workers' LFPR and full-time employment seem to imply an increase in beneficiaries who also are employed.

Finally, as workers near retirement, they are more concerned than ever whether their retirement income will be sufficient to pay their bills—especially for medical and perhaps long-term care—throughout a retirement that could last decades. In response to these concerns, many financial planners recommend delaying retirement for at least a few years. The increases in LFPR and full-time employment reported above seem to indicate that older workers have been increasingly taking that advice.


Murray Gendell is a research professor in the department of sociology and anthropology at Georgetown University.


References

  1. See Joseph F. Quinn, "Has the Early Retirement Trend Reversed?" (unpublished paper), accessed online at http://fmwww.bc.edu/ec-p/wp424.pdf; and Joseph F. Quinn and Gary Burtless, "Is Working Longer the Answer for an Aging Workforce?" Issues in Brief 11 (December 2002), Center for Retirement Research, Boston College University, accessed online at www.bc.edu/centers/crr/ib_11.shtml, on Feb. 13, 2006. For annual LFPR from 1963 to 2003 for men and women ages 55-61, 62-64, 65-69, and 70 and over, see Federal Interagency Forum on Aging Related Statistics, Older Americans 2004: Key Indicators of Well-Being (Washington, DC: Federal Interagency Forum on Aging Related Statistics, 2004), accessed online at www.agingstats.gov, on Feb. 13, 2006.
  2. A recent analysis based on data from the biennial University of Michigan Health and Retirement Study came to the same conclusion. See Alan L. Gustman and Thomas L. Steinmeier, "The Social Security Earnings Test, Retirement and Benefit Claiming," Working Paper 2004-090, University of Michigan Retirement Research Center (September 2004), accessed online at www.mrrc.isr.umich.edu, on Feb. 13, 2006.
  3. Alicia H. Munnell, Kevin E. Cahill, and Natalia A. Jivan, "How Has the Shift to 401(k)s Affected the Retirement Age?" Issues in Brief 13 (September 2003), Center for Retirement Research at Boston College, accessed online at www.bc.edu/centers/crr/ib_13.shtml, on Feb. 13, 2006.
  4. "Economic Assumptions and Methods," The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (Washington, DC: Social Security Administration, 2002), accessed online at www.ssa.gov/OACT/TR/TR05/V_economic.html#wp170227, on Feb. 13, 2006.
  5. Social Security Administration, Annual Statistical Supplement, 2004 to the Social Security Bulletin (Washington, DC: Social Security Administration, 2005), table 6.B5, accessed online at www.ssa.gov/policy/docs/statcomps/supplement/2004/, on Feb. 13, 2006.