Monday, November 19, 2012

New paper from the Social Science Research Network: “Will Delayed Retirement by the Baby Boomers Lead to Higher Unemployment Among Younger Workers?”

"Will Delayed Retirement by the Baby Boomers Lead to Higher Unemployment Among Younger Workers?"
Boston College Center for Retirement Research Working Paper No. 2012-22

ALICIA H. MUNNELL, Boston College - Center for Retirement Research
APRIL YANYUAN WU, Boston College - Center for Retirement Research

Using 1977-2011 data from the Current Population Survey, this paper investigates the often-repeated claim that delayed retirement by baby boomers will result in higher unemployment among the young, a claim which has been garnering increased attention from the media during the Great Recession. It explores both time-series and cross-state variation, and uses state-level regressions and instrumental-variable models to determine the extent to which such “crowding out” exists in the United States. The estimates show no evidence that increasing the employment of older persons reduces the job opportunities or wage rates of younger persons.

Indeed, the evidence suggests that greater employment of older persons leads to better outcomes for the young in the form of reduced unemployment, increased employment, and a higher wage. The patterns are consistent for both men and women and for groups with different levels of education. Estimates using elderly male mortality rates as instrumental variables also produce no consistent evidence that changes in the employment rates of older workers adversely affect the employment and wage rate of their younger counterparts. If anything, the opposite is true. Finally, despite the fact that the labor market downturn that accompanied the Great Recession was the most severe experienced in the post-war era, the effects of elderly employment on other segments of the labor market do not differ from those during typical business cycles.


Arne said...

I tried to have an open mind reading this paper, but when I looked at the title I really wondered how the authors were going to avoid trying to extrapolate into an area not covered by the data. While I think they have presented some nice results to show that the "lump of labor" does not normally cause crowding out, I do not think they have really answered the question.

The question (as I would ask it) is really whether changes in voluntary exit of the workforce will have a temporary impact. In particular, will the hit that "elderly" workers have taken a to their savings change their behavior enough to impact the course of the recovery for younger workers. Since the authors do not address wealth and do not distinguish voluntary from involuntary separation, I am dubious as to whether their study can be applied to the recovery to the extent someone reading the title might expect.

Andrew G. Biggs said...

The short-term impact does matter in a time like today, but in general proposals to extend worklives are aimed at the long term. And in the long term it seems that the lump of labor fallacy remains a fallacy. So I get you point, and agree that short-term impacts could be differen,but it's a question of how much importance to attach to it.