Thursday, October 17, 2013

GAO Report on Older Unemployed, Early Retirees & Disabled

If you were 50-something and laid off from your job during the Great Recession, you were most likely left standing without a chair after the music stopped --- and remained unemployed, even after employers eventually began rehiring again. As the New York Times recently reported, "For those over 50 and unemployed, the statistics are grim." CNN reports these older jobless Americans as "the new unemployables" --- and Fox News describes them as "hidden and hurt".

According to one Government Accountability Office (GAO) report, if you lost your job early on during the Great Recession, after a duration of time, and after using up all your available unemployment benefits (if you had qualified), you were also most likely to use all (or part) of your savings account and/or retirement plan --- and/or maybe you used these funds to augment your unemployment benefits while attempting to maintain your status quo --- all while you were vainly seeking re-employment, but only to be constantly rejected by employers.

And as you were exhausting all your economic means (maybe you sold your possessions on eBay, or at a garage sale, or at swap meet), you might have been forced to move in with a family member or friend, or you might have ended up homeless, and/or you might have even contemplated suicide*.

* Editor's Note: While although the GAO report doesn't touch on this subject, earlier this year the Centers for Disease Control and Prevention reported: "Evidence suggests that there have been substantial increases in suicide rates among middle-aged adults in the United States." As of 2010 there was a 28.4% rise in suicide rates for people aged 35 to 64 --- but the greatest increases were women aged 60–64 years (up 59.7%) and men aged 50–59 years (up 49.4%) --- Also read: Suicides Spike 30% for Baby Boomers

Or maybe you struggled through a long and protracted Social Security disability claim, and were lucky enough to finally be awarded after being on pins and needles for 1 to 3 years while awaiting your fate.

Or maybe you managed to make it to the age of 62, thereby qualifying for an early (but much reduced) Social Security retirement benefit.

Last year the Government Accountability Office released a report on unemployed older workers. The basic findings are this: Many faced long-term joblessness and reduced retirement security --- primarily because, after remaining unemployed and using up their savings and/or retirement funds to pay for basic necessities, by being between the ages of 55 and 62 years old, they were "too old to hire but too young to retire" --- and were left stuck between a rock and a hard place. What follows are a few excerpts from the 19-page GAO report with a few notations...

"Although long-term unemployment hurts job seekers of all ages, it poses particular challenges for older workers. Older workers tend to be out of work longer than younger workers, threatening their retirement savings during a period of their lives when they have may have less opportunity to rebuild them.

Even when they are able to obtain reemployment, they often do so at lower wages, making it even more difficult to replenish the lost earnings and reduced retirement savings that they suffered. For those long-term unemployed workers who cannot find work, they may leave the labor market altogether and claim Social Security retirement benefits earlier than they would have otherwise, leaving them with less retirement income each month for the rest of their lives. As such, the effects of the recent recession highlight the limitations of our current retirement security system.

While it is crucial that the nation help people of all ages return to work, long-term unemployment has particularly serious implications for older workers (age 55 and over). Job loss for older workers threatens not only their immediate financial security, but also their ability to support themselves during retirement.

Unemployment rates for workers of all ages have risen dramatically since the start of the recent recession in December 2007 --- and workers age 55 and over have faced particularly long periods of unemployment. The seasonally unadjusted unemployment rate for older workers increased from 3.1 percent in December 2007 to 7.6 percent in February 2010 --- before it decreased* to 6.0 percent in April 2012.

* Editor's Note: This 1.6% decline might also be because these older workers became classified by the Bureau of Labor Statistics as "discouraged workers", and just like unemployed workers in all age groups, after a while, they are no longer counted in any measure of in the unemployment rate.

As in prior recessions, smaller percentages of older workers (age 55 and over) became unemployed in comparison with younger workers. Some researchers attribute older workers’ lower unemployment rates to the fact that older workers tend to have longer job tenure*, and are consequently less likely to be laid off than younger workers.

* Editor's Note: Unless of course, they had less in-house seniority --- as in, the "last hired, the first fired" --- or if they are ever fired for "willful misconduct".

But generally speaking, it usually takes older job seekers longer to find new work. Since the Great Recession began in 2007, many job seekers of all ages have experienced long-term unemployment --- but individuals age 55 and over have consistently experienced longer durations of unemployment than younger workers. Moreover, the median length of unemployment has more than tripled for older workers since the recession started, increasing at a greater rate than that of younger workers.

In 2007, less than a quarter of unemployed older workers were unemployed for longer than [6 months]. By 2011, this number had increased to 55 percent. Moreover, by 2011 over one third of all unemployed older workers had been unemployed for over a year.*

* Editor's Note: As of this post, in 2013, "over one year" means "over 3 years". And if one were laid off in the Fall of 2008, this would mean "over 5 years". If someone were 55 in 2008 and still remained unemployed today, they would still be 2 years away from qualifying for an early (and much reduced) Social Security benefit.

Unemployment rates for older men were comparable to those of women in 2007, but were significantly higher for men by 2011.

Regarding education, older workers without a high school diploma were more likely to be unemployed before and after the recession than those with a high school diploma. One possible explanation of the increase in unemployment among less educated older workers is that unemployment rates in manufacturing and construction increased dramatically in the recent recession, and these industries tend to employ a higher percentage of less educated workers than do many other industries.

Further, an estimated 70 percent of reemployed displaced older workers sustained earnings losses (if they were ever to be re-employed). Displaced workers* are those who indicated that they lost a job for economic reasons --- such as plant closures or their position being eliminated --- during the previous 3 calendar years. (Displaced workers are surveyed by the Census Bureau every 2 years, with the most recent survey interviewing people who lost their jobs during the Great Recession.)

* Editor's Note: See this post about the offshoring of jobs. A study shows that almost 1/3 of all US jobs are still prone to offshoring, meaning more displace workers.

During a GAO focus group, participants said that they believed employer reluctance to hire older workers was their primary reemployment challenge, and several cited job interview experiences that convinced them that age discrimination was limiting their ability to find a new job. Moreover, many experts and other workforce professionals who were interviewed actually admitted that some employers are reluctant to hire older workers --- but because of legal prohibitions against age discrimination, employers were very unlikely to explicitly express their lack of interest in hiring "older workers".

However, one workforce professional told the GAO that local employers had asked them to screen out all applicants over the age of 40. According to experts that the GAO interviewed, a key reason employers are reluctant to hire older workers is that employers expect providing health benefits to older workers would be costly. Several surveys of employers have corroborated their concerns, and said that many older workers substantially increased insurance costs, which provided a disincentive to hire older workers.

In addition to increased health insurance costs: according to experts, workforce professionals, and GAO focus group participants, some employers may be hesitant to hire older workers because of the higher wages that many older workers earned in their previous jobs.

Also, according to the experts that the GAO interviewed, employers may also believe that an older worker who previously held a high-level position will be overqualified, and therefore, unhappy in a lower-level position. (Editor's Note: Maybe the younger boss feels threatened by an older worker's experience and skill --- and fears losing their own job.)

Some experts the GAO interviewed said that employers might hesitate to hire and retrain older workers because they assume that older workers will not want to work much longer (as in, they might soon retire), so the employer would not get a good return on any training investment.

Also: According to workforce professionals, an ongoing trend among employers is to require job seekers to submit all applications and resumes online --- and many online job applications* require applicants to disclose information that readily reveals the applicant’s age (such as the year the job seeker graduated from high school) --- and applications cannot be submitted until such fields are completed.

* Editor's Note: Some online applications also require an applicant to submit to a very lengthy 3rd party psychological exam (up to 100 questions), and from personal experience, not only do I find this more invasive than a criminal background or credit check, but I believe this is pseudo-science when screening real human beings.

Job loss can result in fewer years of work over a worker’s lifetime, which can lower the worker’s retirement income in several ways. Moreover, Social Security retirement benefits may be reduced as a result of fewer years of work because the benefits are based, in part, on a calculation of the worker’s average monthly earnings over 35 years*.

* Editor's Note: The 35 years used for the calculation are those with the worker’s highest earnings, adjusted for changes in wage levels. If a worker has less than 35 years of earnings, then zeros would be used for earnings in the missing years, and this will result in a lower calculated benefit.

Long-term unemployment can motivate older workers to file for early Social Security retirement benefits. Many unemployed older workers in the GAO focus groups said that they were planning to claim Social Security retirement benefits as soon as they were eligible --- or had already done so because they needed a source of income to help pay for living expenses.

Moreover, a 2012 study found that high unemployment increases Social Security retirement claims among men with limited education. The spike in claims for Social Security retirement benefits that occurred in 2009 after large increases in unemployment rates offers support for the study’s findings. According to estimates from the Social Security Administration's Office of the Chief Actuary, in fiscal year 2009 about 6 percent more older workers applied for Social Security retirement benefits than would have been expected in the absence of a recession. (But men with a limited education, by about a whopping 40 percent.)

Because Social Security retirement benefits claimed before full retirement age are reduced to account for the longer period of time that the benefits will be received, early claiming will cause individuals and their survivors to have lower monthly retirement benefits for the rest of their lives. (Editor's Note: And there's talk in Washington about reducing these benefits even more by using chained-CPI for calculating their cost of living adjustments.)

The recession also led to an increase in applications for disability benefits from the Social Security Disability Insurance program (SSDI). In turn, the percentage of individuals in the population age of 50 and over who have been awarded disability benefits has increased* since the recession started.

* Editor's Note: Because the GAO report is slightly dated (relying on data pre-2012), it was not mentioned that since that time, while although disability "claims" were up for a while, actual "awards" are now down. See my posts at the Economic Populist --- Report: Disability Claims and Awards Declined and The Last Word on Social Security Disability. Also see my post about the false reports of disability fraud.

Older workers who lost their jobs in the recession and had significant injuries or health problems, and were not old enough to claim Social Security retirement benefits, have a stronger incentive to apply for Social Security disability benefits [even though many would still prefer to work]. If they are awarded benefits, they will receive monthly payments and, after a 24-month waiting period, they will also be eligible for health insurance from the Medicare program. Also, receiving Social Security disability benefits gives unemployed older workers an alternative to claiming Social Security retirement benefits early.

Unemployed older workers who have a retirement account may also end up using some or all of those savings to cover living expenses while unemployed. Indeed, just over half of the older workers in the GAO's focus groups who reported having retirement savings in an IRA (or a DC plan like a 401k or union pension) also reported that they had used some or all of these savings to pay for expenses while they were unemployed. More specifically, the focus group participants described using retirement savings to cover expenses such as mortgage and car payments, medical bills, a child’s college tuition and moving to more affordable housing.

A survey of unemployed workers conducted in March 2010 also found that a high percentage of individuals 55 and over reported using savings set aside for retirement for other purposes to help make ends meet. In addition, an October 2010 survey of workers age 50 and over found that nearly a quarter reported that they had used all their savings in the previous 3 years. The GAO reports says, "These recent developments are particularly troubling considering the fact that the earlier a worker stops working and cashes out a DC retirement plan, the lower the savings will be, and the shorter the period that the savings are likely to last."

As the GAO report had also noted, depending on the level of savings, the length of time the worker spends unemployed, and the worker’s other financial resources, a worker may be at risk of using a large percentage of their DC retirement plan during unemployment. If, however, the worker is fortunate enough to find another job that includes an employer-sponsored retirement plan (or is paid enough to enable the worker to save some earnings in an IRA), the worker may be able to resume saving for retirement.

Two of the policies that experts selected* would provide work incentives, such as temporary wage or training subsidies for employers to hire long-term unemployed older workers and/or would require long-term unemployed workers to enroll in training to remain eligible for unemployment insurance benefits.

* Editor's Note: I suspect that these "experts" that the GAO alludes to are GOP politicians, who would also limit food stamps to unemployed adults without children to only 3 months.

But the GAO report concludes that "in the current context of high unemployment and slow job creation, the impact of such policies is likely to be muted by limited job openings." (Editors Note: Using the U-6 measure for unemployment, there is only one job opening for every 6 unemployed.)

The video below contains excerpts from focus groups that the GAO conducted with long-term unemployed older workers discussing the challenges they face in unemployment and how it has affected their plans for retirement. Many unemployed older workers who experience challenges regaining employment, not only face reduced retirement security, but they also struggle with depression, anxiety and discouragement --- and many have difficulty paying for critical living expenses (food, heat and and rent). They also had to deal with the realization that employers are reluctant to hire them --- "Too old to hire, too young to retire" --- and the older and longer they have been out of work, the least likely they will ever be rehired again. Many employers think of them as "tainted goods".

Excerpted Text
GAO Link

My Other Posts on Long-term Unemployed Workers

June 28, 2013 - Congressional Hearing: Long-term Unemployment for Older Workers

October 9, 2013 - The Long-Long-Term Unemployed (A Year or Longer)

September 28, 2013 - Older and Unemployed? You are SOL

August 26, 2013 - Long-Term Unemployed Baby Boomers in 2013

July 7, 2013 - Count the long-term unemployed 99ers in 2013

June 25, 2013 - Long-term Unemployment: Hysteresis, Older Workers & Disability

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