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II. WORK AND OLDER AMERICANS
DISCUSSION
Jeff Petersen should be commended for
a very insightful paper and a thorough presentation about those factors
influencing retirement and about how flexible employment policies may
affect the decision to retire. As a labor economist, I found the analysis
nicely done, and as one who is approaching retirement, I found the paper
especially interesting. I'd like to add several thoughts to those already
made by Jeff and raise a couple of questions as well.
First, the future strains on the financial
resources of the Social Security system that will come about from the
rise in the "aged dependency ratio" are frightening. And, of course, if
we can encourage people to stay in the labor force longer, we can reduce
the growth of this ratio. But what are the prospects for this happening?
From the labor supply side, there are
both good and bad signs. In the first place, there is the declining proportion
of pension plans that are defined-benefit plans. As Jeff has mentioned,
defined-benefit plans can provide incentives for early retirement because
they usually do not increase retirement benefits should the worker want
to remain working beyond the normal retirement age. There is also evidence
that the health of the older population is improving. I am not sure, however,
that this is as favorable a sign as we might like. Although a healthier
older population has the capacity to work to older ages, Dora Costa
has pointed out that past improvements in health do not seem to have lengthened
the work lives of either Europeans or Americans, at least not in recent
decades. Instead, retirement rates have increased even as the health of
the older population has improved (Costa 1999, 4).
There also seems to be some confusion
as to what the actual current trend in the retirement age really is. According
to Murray Gendell, since the beginning of the 1990s, the average retirement
age has resumed its decline after having leveled off during the preceding
ten to fifteen years (Gendell 2001, 12). But Richard Johnson (as well
as others) argues that Americans are now retiring later (Johnson 2002,
1). Certainly, the sharp decline in the stock market over the past several
years and the loss of billions of dollars of pension assets will have
some effect on pushing back the average age of retirement, but whether
the effect is short term or long term is still not clear.
From the demand-for-labor side, I also
find the prospects less than cheerful. First of all, as Jeff has noted,
in the private sector we see some examples of flexible employment arrangements
for older workers (like at CVS and Monsanto), but as he says they are
"not as yet" very common. I stress the fact that Jeff has used the phrase
"not as yet" in both his IRRA paper and a fuller, very interesting report
that he wrote (with several others) for the U.S. General Accounting Office
last year. The report, entitled Older Workers: Demographic Trends Pose
Challenges for Employers and Workers, states that employers will probably
experience labor shortages resulting from the large-scale retirements
of baby boomers in the future. The report also suggests that that these
shortages will induce more employers to provide more flexible employment
arrangements for older workers; however, I'm not convinced. It's possible
that employers see the current disproportionate number of older workers
in their workforces as being suboptimal. Moreover, there's research suggesting
that the elasticity of substitution between younger and older workers
may be pretty high (Hamermesh 1994, 19). One need only look at what some
universities are doing to encourage older higher-paid faculty to retire
to make way for younger blood. In short, it's not certain that the retirement
of large numbers of older employees in the future will necessarily result
in labor shortages that will in turn lead to the creation of more such
flexible employment policies.
I have one last comment--a question, actually.
Jeff has mentioned the fact that a number of state and local employers
have implemented certain pension features (such as DROPs) to encourage
their employees to remain at work after they have reached retirement age.
I note that his examples, though, have been only in the teaching occupation,
where shortages (in some subjects, such as math and science) have been
longstanding. What I'm wondering is whether there are any other public
sector occupations where such plans have been put in place. I might also
point out in passing that two of the four states that he uses as examples--Arkansas
and Louisiana--pay teachers among the lowest salaries in the nation. What
may well be happening in these states is that the teacher shortage may
be especially acute because of the low level of teacher pay.
References
Costa, Dora. 1999. "Has the Trend toward Early Retirement
Reversed?" Presented at the First Annual Joint Conference for the Retirement
Research Consortium, "New Developments in Retirement Research."
Gendell, Murray. 2001. "Retirement Age Declines Again
in 1990s." Monthly Labor Review. Vol. 124, no. 10 (October), pp.
12-21.
Hamermesh, Daniel. 1993. Labor Demand. Princeton,
NJ: Princeton University Press.
Johnson, Richard. 2002. "The Puzzle of Later Male Retirement."
Economic Review. Federal Reserve Bank of Kansas City (third quarter),
pp. 1-22.
U.S. General Accounting Office. 2001. Older Workers:
Demographic Trends Pose Challenges for Employers and Workers, Report
GAO-02-85
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