We Ignore Joblessness Among the Elderly at Our Peril

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The Great Recession's employment crisis is notable for two reasons. First, the number of long-term unemployed has been much higher than in prior recessions. The percent of unemployed who have been out of work for 27 weeks or longer has been above 40 percent since December 2009, far higher than the previous peak of 26 percent in 1983. Second, those over the age of 55 were particularly hard hit by unemployment.

The two stories are connected. According to our calculations with Bureau of Labor Statistics data, more than fifty percent of unemployed older workers were among the long-term unemployed in 2012. Prior to the recession, this number was 20 percent. Also, today this group accounts for more than 20 percent of all long-term unemployed workers. In other words, addressing the problem of long-term unemployment necessarily involves tackling the challenge of helping older workers find jobs.

To see how older workers respond to job loss, particularly a long spell of unemployment, we examined the Current Population Survey microdata from May 2012 to April 2013. We tracked individuals over the course of the year and noted changes in their situation between the beginning month of the sample and the last month.

For individuals who started the survey unemployed, a similar percentage remained unemployed across older (55 and over) and younger workers (25-54), but younger workers were significantly more likely to find jobs (26 percent) and report full-time employment (or voluntary part-time employment) than older workers (20 percent). Older workers also reported negligibly higher rates of discouragement and poor health than younger workers. It also appears that younger workers were more likely to transition to part-time work for economic reasons. These part-time workers are those who are willing and available to work full time, but have accepted part-time work for lack of full-time opportunities.

When we studied only the sample of individuals who had been unemployed for 27 or more weeks, again the older workers were far less likely to report having found jobs compared to younger workers. Almost 16 percent of younger workers found jobs as compared to 10 percent of older workers. Even within this pool of long-term unemployed, older workers were less likely to accept part-time jobs. They were marginally more likely to report discouragement and ill-health.

Admittedly, these data are based on a limited sample, yet the interesting picture that emerges is that unemployed older workers are far more likely to keep looking for full-time work than younger workers who are more willing to accept part-time work in order to have some sort of job.

These findings help illuminate some of what we already knew from the BLS' published data. Older workers are less likely than younger workers to lose jobs, possibly due to their experience and longer job tenure, as shown by their lower unemployment rate relative to the rest of the working age groups. Between 2007 and 2012, annual unemployment rates for individuals aged 25-54 years rose from 3.7 to 7 percent, while for individuals aged 55 and over, the increase was from 3.1 to 6.0 percent. These numbers, strikingly higher than in previous recessions, show that older workers are still more likely to hold on to their jobs when the economy is rocky.

But once older workers lose their jobs, the labor market is stacked against them. In 2007, prior to the recession, the median duration of unemployment for older workers was approximately 10 weeks; By 2012, the median duration of an unemployment spell had increased to more than 30 weeks. In comparison, the median duration for all age groups is currently around 19 weeks. In fact, the older the age group, the longer the spell of unemployment that it experienced.

One possible reason for this is that older workers are more likely to require medical insurance, which is more often bundled with a full-time job than a part-time job. Recent research finds that older workers remain in the labor force to retain health care benefits until they become eligible for Medicare at age 65, particularly since fewer employers now provide health care coverage. Older workers are also likely to require higher paying jobs since they are generally responsible for other high-cost items, like mortgage payments on their home or children's living expenses.

Furthermore, older workers also need to plan for retirement. Part-time workers may not be able to claim retirement benefits through an employer-funded program, and those who are unemployed for long periods may also want to apply for full-time, high paying jobs since their social security benefits are a function of their 35 highest earnings years. If they lost their job before they had 35 years of earnings, lower income from part time jobs would result in lower calculated benefits.

Unfortunately, these are precisely the reasons why firms are reluctant to hire older workers. According to a GAO study, a key reason employers are reluctant to hire is that they expect providing their health benefits would be more costly. They also worry that older workers with long job tenures are more likely to demand higher salaries or leave even if they initially accept a lower paying job. Additionally, employers believe that their investment in hiring and training older workers may not pay off since older workers may not be willing to work much longer.

This creates a clear mismatch in the labor market for older unemployed workers. What older workers expect from a new job is very different from what employers are willing to provide. Unless specific policies are targeted to address the very unique challenges of the older long-term unemployed workers, this problem will only continue to grow.

Fortunately, there are some policies that could help address the problem, such as offering wage subsidies to employers that hire older workers who are long-term unemployed, providing training subsidies to employers that hire older unemployed workers, or enacting a wage insurance program that temporarily compensates older workers for accepting new full-time jobs that pay less than their previous jobs within a given time frame. An active policy to encourage older workers to find part-time jobs might also smooth the transition out of unemployment, particularly out of long-term unemployment, since they may be able to retain skills and avoid the gaps in their résumés that are a red flag to potential employers.

The labor market's current treatment of older job seekers is untenable. Without policy change, this critical and growing segment of the workforce will continue to face hardship and financial insecurity, and the problem of long-term unemployment will continue to pose a challenge to labor market recovery. We need a renewed focus on the unique needs of older job seekers.

Aparna Mathur is a Resident Scholar in Economic Studies at the American Enterprise Institute (AEI). Daniel Hanson is a research assistant and Peter Hansen is an economics intern at AEI. 

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