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From WSJDN
Baby Boomers and the Labor Force
Retiring Baby Boomers are expected to leave the labor force over the next decade, but they may also be working later in life.
The Congressional Budget Office released a report today, projecting labor force participation through 2021. Labor force participation peaked in the late 1990s at around 67% as Baby Boomers reached peak working age and the entrance of women into the work force plateaued. It have been dropping since, with the decline exacerbated substantially by the recession as people dropped out of the labor force. The participation rate stood at 64.2% in February, down from 66% in December 2007 when the recession began. The CBO expects it to decline to 63% by 2021. (See an interactive graphic that compares participation rates for different demographic groups.)
The recession has taken a toll on participation rates for nearly every group, with one exception — older workers. More people 55 and over are staying in the labor force, and the participation rates for older workers are the only ones that rose in recent years. CBO offers this explanation:
“Among the possible contributors is improved health, both because it makes people better able to continue working and because associated increases in life expectancy may lead many workers to prefer to work longer in order to accumulate enough savings to finance what they anticipate will be a longer period of retirement. A shift toward fewer jobs requiring physical strength also could be contributing by allowing people with diminishing strength to stay in the labor force longer. In addition, several institutional changes have increased incentives for people to retire later in life. Private pensions increasingly have shifted away from defined-benefit to defined-contribution plans. Workers who are covered by defined-benefit plans often have little to gain by remaining on the job once the maximum potential benefit is attained (frequently at age 65), so the incentive to retire at that point is strong. No comparable incentives exist for workers with defined-contribution plans. At the same time, although many employers offer health insurance to current active employees, employer-provided health insurance for retired workers is becoming less common. Thus, there has been a growing incentive for people to remain in the workforce until at least the age of 65 and the beginning of eligibility for Medicare.”
The report notes that changes to Social Security, including raising the age for full retirement, also has played a role.
The drop in the overall participation rate due to demographics can be positive, especially in the wake of a recession that has left millions unemployed. Retiring Baby Boomers make room for younger workers looking for jobs. At the same time, that process could slow if older workers are facing underfunded retirement accounts or if Congress raises the age to qualify for Medicare or Social Security as it seeks to deal with mounting deficits.
