Most studies found that even big changes in Social Security would cause only small changes in the average retirement age. In research with Robert Moffitt, for example, I estimate that increasing the normal retirement age in Social Security from 65 to 68 would add only a little more than 4 months to the full-time working careers of men who have no disabilities. One way to assess the impact of Social Security reforms is to examine differences in retirement patterns among people who face different incentives because the program has been changed in an unanticipated way.
In and again in Social Security benefits were increased much faster relative to wages than at any time in the recent past. By benefits were 20 percent higher than would have been the case if pensions had grown with wages as they did during the s and s.
I examined the first episode, and Alan Krueger and J. Pishke examined the second. Both studies reached an identical conclusion: Major changes in Social Security generosity produced small effects on the retirement behavior and labor force participation of older men.
I found, for example, that the percent benefit hike between and caused only a 2-month reduction in average retirement age of men who were fully covered by the more generous formula. This is equivalent to a reduction in the labor force participation rates of year-old and year-old men of less than 2 percentage points. The effects of the amendments found by Krueger and Pischke were even smaller. These findings suggest that an increase in the normal retirement age will probably have only a small effect on the age that male workers withdraw from the work force.
It is harder to predict the effects of an increase in the early retirement age because we do not have good enough historical evidence to evaluate the impact of this kind of change. It is conceivable that elimination of early retirement pensions would make early retirement impossible for low wage workers who have no other sources of retirement income except Social Security. In that case, increasing the early eligibility age might cause labor force participation and employment rates at age 62 to rise by 5 percentage points or more.
Employer responses. Many people wonder how employers would respond to changes in the early and normal retirement ages in Social Security.
If workers wanted to delay their retirements to become eligible for more generous Social Security pensions, would employers create enough extra jobs to employ them? Or would employers discriminate against older job seekers, making it hard for them to find and keep jobs?
Historical evidence about the job creating capacity of the U. Over the long run, the U. From through , when the baby boom generation reached adulthood and entered the job market, the labor force grew by Most of this surge was driven by the jump in U. From to the number of Americans holding jobs climbed by In other words, about 95 percent of new job seekers in this period were able to find jobs, though the number of people available for work swelled by two-thirds.
The unemployment rate rose only slightly, increasing from 5. Many people find it surprising that so many extra job seekers can be absorbed by the labor market. They overlook a basic reality of flexible labor markets: In the long run employers are free to change their product lines and production methods to exploit the availability of a newly abundant type of labor. Moreover, they ignore the possibility that wages can rise or fall in response to the entry and exit of large numbers of potential workers.
In the s, for example, the wages received by younger workers fell in comparison with those earned by older workers, in large measure because younger workers became much more abundant. Faced with a huge increase in the availability of workers who had limited job experience, employers adopted production methods that took advantage of less experienced workers. Restaurant meals were prepared and served by eleventh grade students and high school dropouts rather than by experienced cooks or waiters.
Gardening and domestic cleaning were performed by unskilled and semi-skilled employees rather than by homeowners themselves. In the end, 95 percent of new job seekers were successful in finding jobs. Of course, many of the new jobs were not particularly well paid.
The huge increase in the abundance of less experienced workers is one reason that pay in many jobs fell. If older workers were forced to wait for two or three extra years for full Social Security retirement benefits to begin, many would choose to remain in their career jobs for a few months or years longer than workers presently do. Older workers who lose their jobs would try harder and more persistently to find new jobs. The jobs that many find would pay lower wages than the jobs they previously held.
In fact, the availability of increased numbers of older workers would almost certainly depress the relative wages of aged job seekers. But low U. Although some observers are pessimistic about the willingness of employers to accommodate the special needs of an aged workforce, I am not. Employers have created millions of part-time jobs to accommodate the needs of students and mothers who are only available to work short weekly hours. People who work on part-time schedules pay a price for short hours in terms of low weekly earnings and lost fringe benefits, but the great majority accepts this price willingly.
My guess is that a comparable accommodation will be made for the special needs of older workers. Most older workers who want jobs to tide them over between the time their career jobs end and eligibility for full Social Security pensions will be able to find suitable jobs.
Summary Social Security faces a long-term financing problem. Related Books. Mark Iwry and David C. Post was not sent - check your email addresses!
The uncomfortable conclusion of labor economists is that raising the retirement age could hurt middle- and low-wage workers, as well as workers who have the bad luck to find their skills become outdated. What to do? Instead of cutting Social Security benefits, retirement policy makers should consider raising more revenue for Social Security and modernizing the k and IRA systems to match the future of work.
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Of course, most societies do some mix of option one and option two. But the degree to which America has gone with "more income" is pretty remarkable. Despite being clobbered by the recession, the labor force participation rate is still higher than it was mid-century. The average age of retirement for men was a year or two lower in than in For women, it was higher.
The number of Americans who complete college has significantly increased since mid-century, but this delays entrance into the labor force by only a few years. Finally, in , average annual hours worked per person was 1, In it was 1, — a decline of less than 9 percent.
When you lay it out like this, the push to raise the retirement age begins to look more than a little perverse. Retirement is a valued and time-honored part of American and Western culture. It's an acknowledgment that people deserve a break after putting in their years in the economy, and that the elderly among us should have a chance to enjoy themselves, spend time with their families, and give back to their communities in other ways. Beyond all that, it's an acknowledgement that there's more to life than a paycheck.
You work to live, not the other way around. So when the economy is able to give us that same paycheck for less effort, there's something demented about concluding that the portion of our lives spent in retirement should get shorter. The response you usually get from critics is that the ratio of retirees to productive workers is going to increase as the baby boomers retire, and the economy won't be able to take the pressure.
That ratio dropped from 5 to 1 in the s to 3 to 1 in the s, and by the time the baby boomer bulge plateaus around , it will be 2 to 1. In India, it was the Economic Survey Report that first floated the idea of revising the retirement age, given the likely slowdown in its population growth, increase in the senior population, and growing life expectancy.
Increasing the retirement age in a gradual manner will play a key role in ensuring the viability of pension systems and in reducing the financial burden on the national exchequer. Additionally, as the Economic Survey argues, it will increase female labour force participation in the older age groups. Further, an increase in retirement age will greatly support skilled and qualified seniors to remain active, while continuing to contribute to national growth.
Japan, for example, introduced a voluntary re-employment system for retirees who can and at will, join back the workforce as part-time employees with different work hours and wages. This will allow especially those willing to re-enter the workforce after retirement to invest in necessary skill upgradation and lead a healthier lifestyle.
More importantly, it will save India millions of dollars in pension pay-outs, especially at a time when the country is staring at growing economic uncertainties. The draft national policy for seniors should treat this as a critical need and, therefore, make relevant policy interventions that provide seniors adequate opportunities to work beyond the current age of retirement.
Economic implication of increasing retirement age The decision to increase the retirement age, despite its obvious economic benefits, has not received much support from the general public and employee associations.
A major reason cited for this is the perception that it will block the entry of young people into the workforce. Labour demand, on the other hand, depends on the size of the economy, demand-supply dynamics, manufacturing activities, and overall market conditions that drive financial systems. Moreover, with more money in the hands of the workforce, there will be more spending, which will lead to the overall expansion of the economy, creation of jobs, and a rise in demand for goods and services.
This is even more relevant in India, which is a consumption-led economy. However, it is true that at organisations, where the number of job vacancies is fixed, increasing the retirement age would likely restrict the entry of younger employees.
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