Removing Barriers to Work for Older Americans Katharine G. Abraham Susan N. Houseman Prepared for Upjohn Institute conference “A Future of Good Jobs: America’s Challenge in the Global Economy” June 22, 2007

Labor force participation at older ages Labor force participation at older ages offers both public and private benefits  Increase tax revenues to help with funding for Social Security and Medicare systems  Improve financial well-being at older ages  Ameliorate projected labor shortages After falling for many years, labor force participation rates for older men stabilized in the mid-1980s and have risen modestly since then Increases have not been uniform  Participation has risen for men in their 60s, especially those 65-69, but has fallen for men in their 50s  Reductions in participation among men in their 50s most marked for less-educated men, a group that also has experienced falling real wages Labor force participation rates for older women were stable through the mid-1980s and have risen since that time

Labor force participation rates for men 65+ have risen in recent years

But labor force participation rates for men in their 50’s, especially the less educated, have fallen

More older Americans will want to work in the future Changes in the nature of available jobs Improving health and increasing life expectancies Changes to Social Security system  Earnings test liberalized for those between 62 and normal retirement age, eliminated for those above normal retirement age  Delayed retirement credit made more generous  Normal retirement age increased (benefits reduced) Changes to private pension system  Shift from defined benefit to defined contribution plans, conversions among defined benefit plans from traditional to cash balance plans  Reduced benefit generosity Declines in retiree health coverage Inadequate savings

How will employers respond to the aging of the workforce? Some analysts have argued that, faced with looming labor shortages, employers will work hard to recruit and retain older workers Others are skeptical about this scenario  Limited employer interest to date in worker retention programs  Programs that do exist target most valued employees  Immigration and/or outsourcing offer alternatives to employers Many more workers who say they would like to continue working at older ages than end up doing so  In various surveys, roughly ¾ of workers nearing retirement age they would like to continue paid work following retirement  Among men age with pension income in 2002, only about 1/3 were working in March 2003, and among men age 65 and older, the share was just 12 percent (Purcell 2005)

Older workers’ plans for continued employment Our research uses data from the Health and Retirement Study (HRS) to examine whether older workers are able to realize their plans for continued employment  HRS respondents age in 1992  Interviewed every two years since that time  Our analysis uses information from first seven wages ( ) In each wave, HRS respondents are asked: “Are you currently planning to stop working altogether or work fewer hours at a particular date or age, to change the kind of work you do when you reach a particular age, have you not given it much thought, or what?” (question wording varies slightly) Response categories: (1) stop work altogether; (2) work fewer hours; (3) change kind of work (including move to self-employment); (4) never stop work; (5) don’t know/haven’t given it much thought; (6) other (including multiple responses)

Many older workers plan to phase into retirement Plans for Work and Retirement Percent with plan Stop work altogether39.3 Work fewer hours29.8 Change type of work7.3 Never stop work12.4 Other11.2 Source: Authors’ calculations from waves 1-7 of the Health and Retirement Study ( ). Excludes individuals with no plans (about 38%). About as many older workers plan to reduce hours or change their type of work as plan to stop work altogether.

Realizing plans for phased retirement As part of the question about their work and retirement plans, HRS respondents are asked about when they expect to make any planned changes. Because individuals are interviewed at two year intervals, we can look at whether people who plan to make a change before the next interview in fact do so  Are plans realized by time of interview two years later?  Are plans realized by time of interview four years later? Those who plan to phase into retirement are much less likely to realize their plans than those who plan to stop work altogether Less-educated individuals are the least likely to realize plans to reduce hours or change the type of work they do

Realizing plans for phased retirement (continued) Percent realizing plans within 2 years Percent realizing plans within 4 years Among those with plans to change in next two years,

Job displacement and the older worker Median job tenure among older workers has declined markedly  Men born in the 1930s had median job tenure of 11.9 years at age 50, but for men born in the 1950s this had fallen to 9.7 years (Farber 2006) Incidence of job displacement among older workers has risen over the last 20 years (Farber 2005)  Protections afforded by workplace seniority have weakened ● Displaced older workers frequently do not find new jobs  Individuals age 55 who lose their jobs are 20 percentage points less like to hold a job at age 59 (Chan and Stevens 2001)  Reemployment rates are much lower among less-educated workers (Farber 2005)  Share of male high school dropouts age who are collecting SSDI rose from 14.8 percent to 19.7 percent between 1984 and 2004 (Autor and Duggan 2006)

Employer reluctance to hire older workers Employer discrimination a concern  In one study of female applicants for entry-level jobs, older applicants (age 50, 55 or 62) were 40 percent less likely to be called in for an interview than younger applicants (age 35 or 45) (Lahey 2005) Older workers may lack necessary skills  Technical skills, especially basic computer skills  “Softer” skills, especially adjustment to an ethnically or culturally diverse workplace Older workers may be more expensive to hire  Employers reluctant to hire a person at a wage below their prior earnings  Workers age have medical expenses 1.4 to 2.2 times those for workers in their 30s and 40s, leading to higher health insurance costs (AARP 2005)

Federal employment and training policy for older workers Federal employment and training programs  Senior Community Services Employment Program (SCSEP) serves about 2/3 of individuals age 55 and over who receive federal employment and training services  Workforce Investment Act (WIA) Adult and Dislocated Worker programs serve about 30 percent of those receiving services  Trade Adjustment Assistance (TAA) serves a small number Real funding for these programs has fallen SCSEP targets individuals age 55 plus with incomes below 125 percent of the poverty level  Participation less than 1 percent of eligible population WIA performance measures favor participants with high post- program earnings compared to their pre-program earnings  Performance measures create a disincentive to serve older workers  Older worker share of program exiters lower under WIA than under JTPA

Budgets for employment and training programs have been falling in real terms.

State programs for older workers We conducted an informal survey to learn about state older worker initiatives Ten states responded with information about current or planned initiatives, most falling into three categories  Employer outreach and education  Improved outreach and services for older workers  Tailoring specific programs to meet older workers’ needs Programs generally modest in scope Are aware of no formal evaluations of these initiatives either in progress or planned

Policy recommendations Increase funding for employment and training programs to help smooth employment transitions for older workers. Modify WIA performance standards to eliminate disincentives to serve older workers Tailor programs to meet needs of older workers Rigorously evaluate older worker initiatives Reform health care financing to reduce disincentives to hiring older workers