New paper: “Working Longer in the U.S.: Trends and Explanations”

Working Longer in the U.S.: Trends and Explanations

Courtney Coile

NBER Working Paper No. 24576
Issued in May 2018
NBER Program(s):Aging

Over the past two decades, labor force participation rates for older men have been rising, reversing a century-long trend towards earlier retirement. Participation rates for older women are rising as well. A number of theories have been put forward to explain the rise in participation at older ages, including improving mortality and health, increasing education and a shift towards less physically demanding work, and changes in employer-provided benefits and Social Security. This paper documents trends in labor force participation and employment at older ages and in the factors that may be contributing to rising participation. A review of these trends and of the relevant literature suggests that increases in education, women’s growing role in the economy, the shift from defined benefit to defined contribution pension plans, and Social Security reforms all likely played some role in the trend towards longer work lives.

http://www.nber.org/papers/w24576

Among the causes of increased labor force participation, as summarized by the Retirement Income Journal:

• A shift in employer-provided pensions from DB to DC type plans reduced the share of workers facing strong incentives to retire at particular ages, while a decline in retiree health coverage left some workers with no means of obtaining health insurance other than through their job, at least until the Medicare eligibility age of 65; both changes contributed to longer work lives.
• Changes to the Social Security FRA (full retirement age), DRC (delayed retirement credit) and RET (retirement earnings test) have strengthened the incentive for work past the FRA, contributing to the increase in participation at older ages.
• Three changes to Social Security – the increase in the FRA, the increase in the DRC above the FRA, and elimination of the RET above the FRA – seem likely to have contributed substantially to the increase in employment at older ages, particularly at ages 65 and above.
• Each one percentage point increase in the DRC is associated with a roughly one percentage point increase in the employment rate of men ages 65 to 69. This estimate suggests that the five-point increase in the DRC since 1990 could explain up to half of the increase in participation of men ages 65 to 69 over this period.
• For men ages 60 to 64, participation began to rise in the mid-1990s, growing from 53% in 1994 to 62% in 2016, a 9-point increase. For men ages 65 to 69, the trend began a decade earlier and the increase to date is 12 points, from 25% in 1985 to 37% in 2016.
• The trend for women is quite different. In all age groups, participation has risen continuously since 1980, increasing by 17 points at ages 55 to 59 and 60 to 64 and by 13 points at ages 65 to 69. In 2016, nearly two-thirds of women ages 55 to 59 and half of women ages 60 to 64 were in the labor force.
• There are very large differences in participation by education. On average across all years, the participation of college graduates is 25 points higher than that of high school dropouts for both men and women ages 60 to 64; at ages 65 to 69, the participation gap between college graduates and high school graduates is 23 points for men and 15 points for women.
• Single men participate at rates 10 to 20 points below their married counterparts, depending on the age group, and these differences have been stable or widened slightly over time. In the case of women, single women in 1980 had participation rates 16 to 18 points higher than those of married women at ages 55 to 64 and 8 points higher at ages 65 to 69.
• Self-employment is fairly popular among men, with 12 to 13% of men ages 55 to 64 and 10% of men ages 65 to 69 engaged in such work in 2016; rates of self-employment among women are about half as large.
• The fraction of men working part-time (less than 35 hours per work) is low but rises with age, at about 6% of those ages 55 to 59 and 9% of those ages 65 to 69. Part-time work is more common for women, with 11 to 12% of all age groups working part-time in 2016.
• Health at older ages – as measured by mortality risk – has improved substantially over time. The mortality rate at age 60 has declined by 40% for men and one-third for women since 1980. While better health may have supported longer work lives, there is little evidence that it is a primary driver.