While the Young Exit the Workforce, the Old Hang In

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The recession and slow recovery sharply reduced workforce participation. When it is tough to find a job, many of the unemployed give up their search for work and leave the labor force. Working-age people who are outside the labor force become too discouraged to start looking for a job.

We have seen one conspicuous exception to this pattern. Americans past age 60 are not only staying in the workforce, their participation rates are rising. In spite of a lackluster job market, participation rates among the aged and near-age continue to edge up. Since the end of the last economic expansion in 2007, the fraction of people past 65 who are working or looking for work has increased more than 3 percentage points, rising from 16% to more than 19% in May of this year.

In contrast, the participation rate and employment prospects of the young remain depressed. The participation rate of 16-24 year-olds plunged 4 percentage points in the Great Recession, and there has been almost no rebound since the recovery began.

Recent labor force trends are part of a longer historical pattern. Older Americans' employment and participation rates have been increasing since the early 1990s. Younger adults saw an unprecedented decline in employment and participation in the 2001 recession, and only a tepid rise in the years thereafter. Between 1990 and 2012 the labor force participation rate of 65-69 year-olds increased 11 percentage points, climbing from 21% to 32%. In the same years the participation rate of 16-19 year-olds tumbled more than 19 percentage points, falling to just 34%. The participation rate of 70-74 year-olds climbed from 11% to 19%, while the participation rate of 20-24 year-olds sank from 78% to 71%.

The aging of the baby boom generation is adding to the ranks of the older Americans. The changing work patterns of young and old are reinforcing the effects of this trend by increasing the share of all workers who are past age 60. Older workers are ordinarily thought to be less productive than younger ones, raising the question of whether an aging workforce will also be a less productive one. In a new research paper, I consider whether an aging workforce has dragged down average worker productivity over the past quarter century. So far the answer is an emphatic "No." Improved education among the population past 60 and delays in retirement among better educated Americans have tended to boost the earnings of older workers compared with younger ones.

There are two main reasons for the surge in older workers' earnings. First, the sheer size of the baby boom generation means that the number of Americans attaining age 60 each year is climbing steeply. Second, employment rates of adults between 60 and 74 have increased. The share of all labor income earned by older workers has soared in recent years because these workers have enjoyed faster wage gains than workers who are younger.

It is crucial to understand why this is the case. A major reason is that older workers are now better educated compared with prime-age workers than was the case in the past. Twenty-five years ago the gap in education between prime-age workers and older Americans was large. Americans past 60 had much less schooling than workers who were younger. The gap is now far narrower.

Trends in education are also important in accounting for the increase in Americans' employment rates at older ages. There are major differences between the participation rates of older people with different levels of schooling. In the early 1990s nearly 60 percent of 62-74 year-old men with doctoral and professional degrees were still in labor force. In contrast, only 20 percent of male high school dropouts the same age were in the workforce. The participation-rate gap was smaller for older women, but it was still sizeable. For both sexes the employment gap between the highly educated and less educated has held steady or widened in the past two decades.

Educational gains have directly influenced older workers' relative earnings by changing the kinds of jobs they can hold. As a result, in the quarter century after 1985 older workers scored impressive wage gains. Compared with the earnings of an average 35-54 year-old worker, the average worker between 65 and 69 has seen his or her earnings climb 30 percentage points. Workers between 70 and 74 experienced a 28-percentage-point gain in their relative earnings.

What are the effects of older workers on average productivity? Using one standard benchmark of individual worker productivity-hourly wages-workers between 60 and 74 now earn more than an average worker who is between 25 and 59. The hourly pay premium for older men was about 22 percent in 2011. For older women it was about 10 percent. Other earnings benchmarks show a somewhat less favorable picture, but all of them show considerable improvement in the relative position of aged workers compared with the nonelderly over the past two decades. None of the indicators of male productivity suggest that older male workers are less productive than average male workers who are between 25 and 59.

The expectation that older workers will reduce average productivity is fueled by the perception that the aged are less healthy, less educated, less up-to-date in their knowledge, and more fragile than the young. While all these images of the elderly are accurate to some degree, they do not necessarily describe those people who choose to remain employed at older ages. The statistics show that there are big differences between the employment rates of older Americans depending on their level of schooling. People with limited education have low employment rates in old age. People with college and advanced degrees tend to remain in the workforce longer.

If less productive workers selectively exit the workforce at younger ages, the average productivity of the older workers who remain may compare favorably to the average productivity of the young. A surge in the percentage of the potential workforce that is old may simply increase the proportion of the workforce that consists of comparatively skilled older workers.

Gary Burtless is a Senior Fellow in Economic Studies and the John C. and Nancy D. Whitehead Chair at the Brookings Institution. 

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