3
Retirement and Labor Force Behavior of the Elderly

Joseph F. Quinn and Richard V. Burkhauser

INTRODUCTION

The transition from work to retirement has long been a major concern of public policy analysts and practitioners. All modern industrialized countries and many developing countries have created policies to mitigate the risk of income loss due to retirement. But in so doing, they have fundamentally altered the reward structure of work and retirement across the life-cycle. The resulting changes in the labor force behavior of older people have been dramatic. In this chapter, we review recent economic research on these issues and outline the areas we think need additional research. We do so from the perspective of the United States, while recognizing that the labor force trends found here are not unique and that cross-national comparisons of public policy and its consequences are useful inputs for understanding and developing domestic policy.

Cross-national comparisons are appropriate because most industrialized countries have instituted retirement policies that discourage work at older ages. In the last decade, these policies have begun to change. In the United States, for instance, recent legislation has outlawed mandatory retirement, banned the cessation of service year credits in pension calculations after a particular age, and increased the Social Security credit for delayed retirement after the age of 65. One intent of these changes is to make the

The authors thank Philip de Jong, Lee Lillard, Linda Martin, and Samuel Preston for helpful comments on an earlier draft.



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Demography of Aging 3 Retirement and Labor Force Behavior of the Elderly Joseph F. Quinn and Richard V. Burkhauser INTRODUCTION The transition from work to retirement has long been a major concern of public policy analysts and practitioners. All modern industrialized countries and many developing countries have created policies to mitigate the risk of income loss due to retirement. But in so doing, they have fundamentally altered the reward structure of work and retirement across the life-cycle. The resulting changes in the labor force behavior of older people have been dramatic. In this chapter, we review recent economic research on these issues and outline the areas we think need additional research. We do so from the perspective of the United States, while recognizing that the labor force trends found here are not unique and that cross-national comparisons of public policy and its consequences are useful inputs for understanding and developing domestic policy. Cross-national comparisons are appropriate because most industrialized countries have instituted retirement policies that discourage work at older ages. In the last decade, these policies have begun to change. In the United States, for instance, recent legislation has outlawed mandatory retirement, banned the cessation of service year credits in pension calculations after a particular age, and increased the Social Security credit for delayed retirement after the age of 65. One intent of these changes is to make the The authors thank Philip de Jong, Lee Lillard, Linda Martin, and Samuel Preston for helpful comments on an earlier draft.

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Demography of Aging retirement system age-neutral with respect to work; that is, to end the age-specific penalties for work beyond specified ages that are imbedded in our current retirement system so that the lifetime value of retirement benefits will not depend on the age at which they are first claimed. But a more fundamental force is likely to affect retirement policy in the future—the aging of postwar baby boomers. The United States and Germany have already enacted changes in their primary retirement insurance systems that will raise the age of normal retirement early next century. A review of past policies will be useful as we lay the groundwork for retirement policy in the twenty-first century. Our discussion of retirement policy extends beyond the Social Security retirement program. In most countries, and certainly in the United States, Social Security disability programs provide a bridge to retirement for some of those too young to qualify for retirement benefits. This protection raises the same economic incentive issues that are the focus of much of the retirement research. Hence, in looking at labor force participation at older ages, we must look at the full impact of the social welfare system on work decisions. Retirement policy extends well beyond government transfer programs. Private contracts between employers and employees can also alter the incentives to work at older ages even when explicit wage rates do not change. Employer pension plans and health benefits also influence the retirement patterns of older workers. Government attempts to alter these contracts provide another topic for public policy analysis. Below, we first document some worldwide trends in labor force participation at older ages and review the literature that has attempted to explain them. We find that although most workers have a choice with respect to retirement age, the choice is constrained by personal health factors, government retirement and disability policies, and employer pension plans. The major debates in the literature are not about the presence of such constraints but rather about the magnitude of their impacts. We end by suggesting how labor force behavior may change as new cohorts of older workers emerge in the next century, and outlining the research and data that will be needed to track this behavior. THE LABOR SUPPLY OF THE ELDERLY Labor Force Participation The United States The retirement trend of older Americans over the last several decades is dramatic. A simple measure is the labor force participation rate—the ratio

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Demography of Aging Figure 3-1 United States male labor force participation rates by age, 1964-1992. SOURCE: Bureau of Labor Statistics, Employment and Earnings, January issues. of those employed (full-time or part-time) or actively searching for work to the civilian noninstitutionalized population. Figure 3-1 shows U.S. participation rates from 1964 through 1992, for cohorts of men aged 45-49 through 70+. For men aged 60-64, which includes the earliest age of eligibility for Social Security retirement benefits (62), participation has dropped nearly a third, from 80 to 56 percent. For men aged 65-69, the decrease is about 40 percent, and for those 70 and over, the participation rate has dropped one-half. The trends are less striking for the younger groups, but even those aged 55-59 have dropped 10 percentage points, with more modest declines for those aged 45-54. For women, the trends are less precipitous, because two offsetting phenomena are at work. People are retiring earlier, but women, especially married women, are more likely to work than previously. For the oldest female cohorts (aged 60 and older), the resultant trends are flat (see Figure 3-2); for the younger groups, the latter dominates, and participation rates are on the rise. The U.S. Department of Labor gathers some labor force data by individual ages. Figure 3-3 shows participation rates for men aged 60-65, which include key ages for Social Security (62 and 65) and for many employer pensions (age 60). The long-run trend can be seen in two ways—the decline for each age over time and the change in the most prominent single-

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Demography of Aging Figure 3-2 United States female labor force participation rates by age, 1964-1992. SOURCE: Bureau of Labor Statistics, Employment and Earnings, January issues. Figure 3-3 United States male labor force participation rates, ages 60-65, 1964-1990. SOURCE: Unpublished data, U.S. Department of Labor.

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Demography of Aging year gap. In 1968, the largest behavioral change occurred between ages 64 and 65. Now, the biggest change is between ages 61 and 62. A gap at age 65 remains, but much of the labor force departure has already occurred. The most recent data suggest that the trend toward earlier retirement in the United States may have stopped or even reversed. For all of the age categories of men above age 50 in Figure 3-1, participation rates over the past 5 years are virtually unchanged. For 11 of the 16 individual ages between 55 and 70 (and for 8 of 10 ages over 60), male participation rates were actually higher in 1990 than in 1985. In summary, men are leaving the labor force much earlier than they were even two decades ago, but there has been little change in the past few years. (As we see below, however, the trends may be continuing still, but in another guise—reduced hours of those employed.) Women's retirement trends are being offset by a rising tide of female labor force participation in general. Other Organisation for Economic Co-operation and Development (OECD) Nations The early retirement trend can be seen in other industrialized nations as well. The participation rates differ by country, as do the magnitudes of the declines, but the general pattern is the same—people are retiring earlier than they used to. Table 3-1 shows the employment-to-population ratio for 16 OECD countries, from 1966 to 1990, for men aged 55 and over.1 The current figures range from 11 percent in Italy to 60 percent in Japan, with most countries in the 30-40 percent range. But every one of these countries except Japan has seen a significant fall. The U.S. decline (about 30% over these 24 years) is typical. Figure 3-4 shows employment to population ratios by age (55-59, 60-64, and 65+) for men in eight selected OECD countries in 1975, 1980, 1985, and 1989 (1987 for West Germany). For the youngest group, these ratios in 1989 ranged from about two-thirds in the Netherlands to more than 90 percent in Japan. Over the past 15 years, the declines ranged from 13 to 15 points (Australia, France, the Netherlands, and the United Kingdom) to less than 1 point (Germany and Japan). Employment rates are substantially lower for the cohort of men aged 60-64—from around 20 (Japan and Sweden) to 25 (Australia, Sweden, United 1   The employment-to-population ratio is close to the labor force participation rate. The latter includes those unemployed (not employed and actively searching for work) in the numerator and therefore is slightly larger. But official unemployment rates tend to be low for the aged, so the differences are small. The long-term stories told by both measures are identical.

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Demography of Aging Kingdom, and United States) to more than 40 points lower (France, Germany, and the Netherlands)—than they are for men aged 55-59. The rates range from a low of about one-quarter (France and the Netherlands) to more than 70 percent in Japan. The declines since 1975 have also varied greatly, from about 10 percent in Japan, Sweden, and the United States to more than 40 percent in the Netherlands. With the exception of the Japanese, market work is now rare among men aged 65 and over. In Japan, more than a third of these men still work, and in Sweden and the United States, one in six or one in seven do. But in the other countries shown, fewer than 10 percent are employed. In France, Germany, and the Netherlands, the figure is closer to 5 percent. Compared to men aged 60-64, several of the cohort drops are precipitous—more than 40 percentage points in Australia, Sweden, and the United Kingdom. A recent study by the OECD (1992:Chapter 5) suggests that these early retirement trends are due to various combinations of explicit incentives in national social security and disability programs, occupational pensions, and collective bargaining agreements. Several summary points emerge. In all of these countries, male employment rates drop dramatically between the ages of 55-59, when the vast majority of men are still working, and 65 plus, when work is the exception, not the rule. The age at which the decline occurs varies. Some countries have huge participation declines at ages 60-64 (France, Germany, and the Netherlands—all more than 40-point drops), and the others have a large decline at ages 65 and over (Australia, Japan, Sweden, the United Kingdom, and the United States—all more than 35-point drops). Second, the trend toward earlier retirement is observed everywhere, but in many countries like the United States, it has tapered off in recent years. Third, U.S. participation rates are typical for men aged 55-59 and 60-64, but relatively high for men 65 and over. Finally, Japan stands out as an exception on work at older ages, with the highest rates for all three age cohorts; it is the only one of these countries in which one-third of men over 65 continue to work. The trends for women are more varied. Table 3-2 shows employment to population ratios for women aged 55 and over in the same 16 OECD countries. In some (such as Canada, Australia, Italy, Japan, and the United States), there has been little change over the past 20 years. Others (Finland, France, West Germany, Spain, and the United Kingdom) have had the same declines observed with men. Only in Sweden has older women's employment increased steadily. Women also show significant labor force withdrawal as they age, although less so in the United States than in most of these other countries. Only in Canada, Japan, Norway, Sweden, and the United States are more than one-third of the women still working at ages 60-64 (not shown); for women aged 65 and over, participation rates are in the single digits for all 16 countries, except Norway and Japan.

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Demography of Aging TABLE 3-1 The Employment-to-Population Ratio for Men Aged 55 and Over (in percent) Year Australia Canada Finland France Germany Ireland Italy Japan 1966 — 42.6 60.3 — — 69.7 17.7 — 1967 57.0 42.8 59.6 — 53.4 — 28.5 — 1968 56.8 42.5 54.7 58.4 52.5 — 27.6 70.4 1969 56.1 42.8 52.9 57.5 47.3 — 0.0 70.1 1970 56.3 52.2 61.3 54.2 48.6 — 25.3 68.5 1971 55.5 50.6 59.3 52.3 45.1 67.3 24.7 68.0 1972 55.1 49.6 55.8 50.2 41.9 — 21.8 66.7 1973 54.0 49.0 54.5 47.7 39.9 — 21.2 66.7 1974 51.4 48.5 54.5 46.0 36.5 — 21.7 65.5 1975 48.7 48.4 50.2 44.5 33.7 57.5 21.2 63.9 1976 46.4 46.2 44.3 43.4 32.3 — 19.8 62.6 1977 45.2 45.3 40.8 43.4 31.4 55.6 21.6 61.3 1978 42.2 45.0 38.3 42.5 30.3 — 20.1 60.8 1979 40.8 45.2 38.3 42.3 29.8 54.6 18.2 60.6 1980 40.0 44.7 39.0 41.7 29.9 — 18.7 61.0 1981 38.9 43.7 38.7 40.8 29.7 52.5 18.2 60.8 1982 36.8 41.9 38.8 38.5 29.5 — 14.8 60.4 1983 33.9 40.5 36.0 35.2 29.1 49.1 17.5 59.9 1984 34.1 39.7 35.1 33.9 28.2 47.6 18.5 59.4 1985 33.1 38.9 34.3 33.1 28.0 44.7 18.3 58.9 1986 33.2 37.9 33.9 32.0 28.5 45.7 18.1 58.8 1987 32.3 36.9 31.9 30.6 31.6 44.5 17.2 58.4 1988 31.8 36.7 30.5 30.1 — 44.7 16.8 58.9 1989 32.7 35.9 29.8 29.8 — 43.4 16.2 59.2 1990 — 35.3 30.2 28.4 — — 10.9 60.0

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Demography of Aging Year Norwaya Netherlands New Zealand Portugal Spain Sweden United Kingdom United States 1966 — — — — — 66.6 — 53.1 1967 — — — — — 66.0 — 53.2 1968 — — — — — 65.2 — 53.5 1969 — — — — — 62.9 — 53.3 1970 — — — — — 61.7 55.4 52.3 1971 — 39.0 — — — 60.0 52.5 51.1 1972 57.7 37.5 — — 54.6 58.4 51.2 50.0 1973 56.2 36.5 — — 52.9 56.9 50.2 48.4 1974 53.5 35.0 — 61.8 46.0 55.5 49.1 47.8 1975 53.6 33.5 — 56.8 46.5 54.4 48.2 45.7 1976 53.9 33.4 — 56.0 47.6 52.0 46.4 44.4 1977 53.9 33.0 — 55.8 46.5 50.2 45.2 44.3 1978 53.3 32.6 — 55.2 44.6 49.6 43.4 44.5 1979 52.0 30.5 — 54.6 43.3 49.6 41.8 44.0 1980 49.5 29.3 — 51.6 41.6 49.4 40.3 43.0 1981 50.4 26.4 — 47.4 40.2 48.1 37.3 41.9 1982 48.1 24.9 — 46.5 38.4 47.4 34.4 41.6 1983 47.7 22.3 — 47.2 36.8 46.0 33.8 39.6 1984 45.9 21.3 — 44.9 34.7 45.1 33.5 38.9 1985 42.7 21.5 — 41.8 32.9 44.6 32.4 38.4 1986 42.4 20.0 40.6 39.8 31.7 44.8 30.8 37.9 1987 — — 38.8 39.7 30.9 44.6 30.6 38.0 1988 — — 34.7 40.5 29.8 45.5 31.4 37.6 1989 — — 31.7 41.4 30.1 45.8 32.3 37.4 1990 — — — 42.0 29.8 44.3 33.0 37.0 NOTE:—indicates data not available. a Data for Norway are for men aged 60 and over. SOURCE: Organisation for Economic Co-operation and Development (1992:Table 5.2).

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Demography of Aging

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Demography of Aging Figure 3-4 Male employment to population ratios in eight OECD countries, 1975-1989. SOURCE: OECD, Employment Outlook (various years).(figure3-4 continued on next page.)

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Demography of Aging TABLE 3-2 The Employment-to-Population Ratio for Women Aged 55 and Over (in percent) Year Australia Canada Finland France Germany Ireland Italy Japan 1966 12.0 — 50.0 — — 25.4 4.1 — 1967 13.2 13.7 48.7 — 18.4 — 6.6 — 1968 13.4 13.9 49.1 28.7 18.4 — 6.2 32.2 1969 13.0 14.5 45.4 28.6 18.2 — 0.0 32.0 1970 13.0 16.6 44.4 27.3 16.5 — 5.1 31.6 1971 13.7 17.3 45.6 25.3 15.0 23.6 5.0 31.1 1972 13.6 16.3 42.9 24.8 14.2 — 4.2 29.8 1973 13.4 16.9 43.4 23.3 13.7 — 4.2 30.7 1974 13.4 16.2 43.0 22.2 12.8 — 4.2 29.4 1975 13.1 16.8 41.9 21.8 11.9 19.6 4.0 29.1 1976 12.7 17.0 39.8 21.7 11.7 — 3.9 29.0 1977 12.8 17.1 39.5 22.1 11.5 17.4 5.3 29.2 1978 11.6 17.3 37.8 21.6 11.4 — 4.8 29.8 1979 10.3 17.7 39.0 21.9 11.3 16.5 4.4 29.6 1980 11.3 17.6 41.1 22.1 11.3 — 4.6 29.5 1981 10.9 17.7 42.2 21.7 11.0 16.0 4.4 29.2 1982 9.3 17.2 43.3 21.0 10.9 — 4.8 29.4 1983 10.0 16.8 44.1 19.7 10.5 15.6 4.2 29.9 1984 9.9 16.7 43.5 19.4 9.9 13.4 4.5 29.3 1985 9.3 16.7 42.7 19.0 9.3 13.1 4.4 29.2 1986 9.7 16.1 39.1 18.6 9.4 12.6 4.6 28.7 1987 10.4 16.4 37.1 18.5 10.1 12.4 4.4 28.8 1988 10.6 16.8 37.2 18.4 — 12.3 4.1 28.9 1989 10.3 16.2 37.8 18.4 — 11.4 4.2 29.4 1990 11.0 16.5 38.2 17.6 — — 4.2 30.0

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Demography of Aging 4,200 households in 1983. Since then, two follow-up surveys on this population have been fielded. What made this an innovative data set was that it also surveyed the respondents' employers to obtain pension plan details. Because it is a survey of wealth holdings across the entire age distribution, however, it has only limited value for studying the retirement decision. Another problem is that the detailed information on pensions proved extremely difficult for researchers to access and therefore has been used sparingly. For these reasons, during the 1980s and into the early 1990s, the data set of choice for retirement questions continued to be the RHS, even though most of its respondents left their career jobs in the early 1970s. The lack of data on more recent cohorts has severely restricted our knowledge of how the retirement process is currently operating. The new Health and Retirement Study will go a long way toward correcting this situation. This longitudinal study, funded under a cooperative agreement with the National Institute on Aging, surveyed approximately 8,000 households with one or more respondents aged 51-61 in 1992. It will provide detailed information on the health and economic behavior of this cohort as it makes the transition into retirement in the mid-1990s. The HRS will prove to be an important resource for researchers in the 1990s because it is newer and because it combines better information on health with more detailed information on economic characteristics. It will also contain employer data on pension and health insurance, along with Social Security earnings records, and has the potential to link other SSA records such as Supplemental Security Income and Social Security benefits. Unlike the RHS, the study design includes a random sample of women aged 51-61 and an oversampling of blacks, Hispanics, and residents of areas with high numbers and densities of older people. No prior longitudinal data sets have contained the quality of information on health and economic behavior that will be available in the HRS. Prior data sets with high-quality health data such as the National Health Interview Survey, have contained very little information on economic behavior and none on pensions. Hence, they have only rarely been used in studies of retirement or disability insurance acceptance (see Bound and Waidmann, 1992, for an exception). The best data sets for evaluating the effect of a health condition on work have been the 1972 and 1978 Social Security Surveys of the Disabled. Unfortunately, budget cuts in the 1980s ended this periodic cross-sectional survey. Hence, those interested in evaluating the effect of disability programs on the economic well-being and behavior of workers with health conditions are forced to use this badly out-of-date information (Bound 1989; Haveman et al., 1991; Burkhauser et al., 1992a,b). The HRS will be very useful for studying the influence of socioeco-

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Demography of Aging nomic factors on job exit and application for disability benefits. The first wave has a module containing retrospective questions on respondent's health that parallels the questions in the Survey of the Disabled. These responses will provide information on transitions from work for those in the cohort with a current health condition. In the longer term, the full benefits of a longitudinal data set will enable researchers to follow the outcomes of older workers who experience a decline in health in the 1990s. These data will be particularly useful for those interested in estimating the impact of the Americans with Disabilities Act of 1990. This act, which was fully implemented for firms with 25 or more workers in 1992, requires that all such firms provide reasonable accommodations to people with disabilities as long as this does not put an undue burden on the operation of the business. The HRS will allow researchers to study the accommodation experiences of older-age workers following the onset of a health-related work impairment in the 1990s. Such data will in part offset the major data loss caused by the curtailment of the Survey of the Disabled. But it is not a substitute for investigating the labor force participation rates of people with disabilities. The need for these data remains unmet. Comparable international data on the health and economic behavior of older workers have been even more difficult to obtain. But even here some gains have been made. The Luxembourg Income Study contains detailed representative cross-sectional data on the populations of most Western European and several Eastern European countries. The data for each country have been refined so that cross-national comparisons can be made.34 Longitudinal data fielded outside the United States have been rarer. Few such studies existed prior to the 1980s. But in the last decade, some new longitudinal data initiatives were begun. The German Socio-Economic Panel (GSOEP) surveyed a representative sample of more than 6,000 German households in 1984 and continues to interview them annually. Eight waves of these data (1984-1991) are now available. These data, similar to the Panel Study on Income Dynamics, can be used to trace the work efforts of Germans over the 1980s. They also contain, beginning in 1990, a random sample of the former East German states that are now part of a unified Germany. The National Institute on Aging has funded a project in cooperation with the Deutsches Institute fur Wirtschaftsforschung (DIW) in Berlin to make the GSOEP available to English-speaking users in a fully translated form through the Gerontology Center, The Maxwell School, Syracuse University.35 New longitudinal data sets of this type are now being fielded in 34   For a detailed discussion of these data, see Coder et al. (1991). For an example of the use of these data for retirement research, see Smeeding (1993). 35   For a detailed discussion of these data see Wagner et al. (1993).

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Demography of Aging several other European countries—France (Lorraine), the Netherlands, Ireland, Belgium, Luxembourg, and Great Britain—and plans are under way to make these data sets comparable.36 All of these new longitudinal surveys contain representative population samples, and some contain enough observations of older persons to analyze labor supply decisions from a multiperiod perspective. But like the PSID in the United States, their primary strength is in measuring economic well-being. They contain information on health similar to that in the RHS. They also contain limited information on employer pension plans. However, this is not as great a drawback for studies of retirement as it would be in the United States because most of these European data sets contain good information on their social security retirement and disability benefits. In European countries, these are the programs that dominate the retirement decision. A final data collection effort that will help close the gap between the detailed information on health and retirement provided by the new HRS and the PSID-type sample design surveys in Europe is the new Health and Retirement Study in Holland. This is a longitudinal survey of 4,000 households containing persons aged 50-63 in 1993. It is funded by NESTOR, a governmental grant committee especially designed to encourage research on aging in Holland, and by the University of Leiden. This may prove to be an important source for cross-national comparisons of retirement in the United States and Holland. The major new longitudinal data sets now becoming available in Europe promise a whole new era of longitudinal comparisons of the economic well-being and labor force participation of older men and women. But greater efforts must be made to ensure the comparability of these data sets with each other and with those in the United States. Investments in data collection begun in the 1960s paid huge dividends in the evaluation of public policy regarding older men during the subsequent two decades. A lack of follow-up in the 1980s retarded research on these issues. The fielding of the HRS promises to close the gap in our knowledge of the influence of labor market institutions on the labor force participation of older men and women. But, like the old RHS, it will require several more years of investment in order to have a major payoff. Today, our most critical data need is the patience necessary to continue funding this major social science project until its longitudinal character is complete. 36   This project is being funded by the European Science Foundation and run by the Center for Population, Poverty, and Policy Studies (Luxembourg) and the DIW.

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Demography of Aging SUMMARY AND CONCLUSIONS The long-term trend toward earlier retirement among men is found throughout the developed world. In some countries, including the United States, the trend may have recently come to a halt. The experiences of older women are more varied and combine the earlier retirement trend with the increased labor force participation of women in general. Considerable research on retirement in the United States has shown that strong incentives to retire are embedded in many of our public and private retirement systems, and that these penalize workers who stay on their career jobs too long. The mechanism is not the paycheck. Explicit age-related pay cuts would be illegal. Rather, the mechanism is found in pension benefit calculation rules that, at some age (65 for Social Security; various ages for defined benefit employer plans), decrease retirement income wealth for those who keep working. These negative accruals are part of compensation and are equivalent to a pay cut. Many older Americans behave as though they understand and respond to these incentives—the larger the wealth loss associated with continued work, the more likely they are to leave their career jobs. The majority of these retirees leave the labor force as well, but a significant minority move to new employment—bridge jobs—often part-time. Changes are under way that will decrease these work disincentives and encourage later departure from the labor force. Mandatory retirement has virtually been eliminated. Social Security will become close to age-neutral over the next two decades, and the age of "full benefits" is scheduled to increase from 65 to 67. Employer pension coverage is flat or declining, and the proportion of those covered by defined contribution plans (without the retirement incentives emphasized above) is on the rise. But the majority of covered American workers are still in defined benefit plans, and these continue to exert a very powerful impact on retirement behavior. As long as these incentives remain, so will the current pattern of labor force withdrawal. Workers will tend to leave their career jobs to avoid reductions in their pension wealth, and many will then look for new employment. As Social Security work disincentives disappear, this route will become even more attractive. Demographic projections, however, suggest that employers may want to change their benefit structures. Industrialized nations are aging. The number of Americans aged 65 and above, about 32 million today, will more than double by the year 2030, while the number aged 55-64 will increase by two-thirds. In contrast, the number under age 18 is projected to decline slightly over the same four decades, and the number of all those under 55 to increase by only 1 percent (Bureau of the Census, 1989; U.S. Senate, 1991). As a result, the percentage of all Americans aged 65 and over is estimated

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Demography of Aging to increase from less than 13 percent today to nearly 22 percent by 2030 (Bureau of the Census, 1989). One-third of the U.S. population will be 55 and older, and the median age will rise from 33 to 42. Those concerned with retirement finance often emphasize the ratio of the prime working-age population (aged 18-64) to those of traditional retirement age (65 and over). This ratio, about 5 to 1 today, will drop to less than 3 to 1 by 2030. But 65, as we have seen, is no longer the typical age of retirement. When the demographic and retirement trends are combined— more older Americans, and fewer of them working—the projections are even more dramatic. Aaron et al. (1989) estimate that the ratio of Social Security contributors to Social Security beneficiaries will drop from 3.3 to 1 today to only 2 to 1 by 2030. But there is no reason to assume that current retirement patterns must or will continue. Research has shown that retirement decisions are endogenous. People make choices based on the financial incentives they face. These incentives have been changed in the past, to encourage early exit from the firm, and they can be changed again, to do the opposite. Such changes will occur when it is in employers' interests to keep older workers on the job. Predicting future labor markets is a risky business. What we can predict with confidence is that if these shortages develop, and if firms decide that the retention of experienced workers can help alleviate the shortages, then the policy tools exist to keep older workers on the job. REFERENCES Aarts, L., R.V. Burkhauser, and P. deJong 1992 The Dutch disease: Lessons for United States disability policy. Regulation 15:75-86. Allen, S.G., R.L. Clark, and A.A. McDermed 1986a Job Mobility, Older Workers and the Role of Pensions. Mimeo, North Carolina State University, Raleigh. Allen, S.G., R.L. Clark, and D.A. Sumner 1986b Postretirement adjustments of pension benefits. Journal of Human Resources 21:118-137. Anderson, K.H., and R.V. Burkhauser 1984 The importance of the measure of health in empirical estimates of the labor supply of older men. Economic Letters 16:375-380. 1985 The retirement-health nexus: A new measure for an old puzzle. Journal of Human Resources 20:315-330. Anderson, K.H., R.V. Burkhauser, and J.F. Quinn 1986 Do retirement dreams come true? The effect of unanticipated events on retirement plans. Industrial and Labor Relations Review 39:518-526. Aaron, H.J., B.P. Bosworth, and G. Burtless 1989 Can America Afford to Grow Old? Washington, D.C.: The Brookings Institution. Berkovec, J., and S. Stern 1991 Job exit behavior of older men. Econometrica 59:189-210.

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