Monday, February 10, 2014

Mass Exodus of Boomers from Labor Force

Most Americans, when asked, will tell you that the unemployment rate is still high because there aren't enough jobs for everybody. And they would be right. But why are some of the "experts" trying to give us a different reason?

Whether ideologically or politically motivated, economists and politicians on both sides of the aisle have been debating as to the reason for the falling labor participation rate.

Some have been saying it's because middle-aged folks have been shuffling off into early retirement to lounge by the pool; while others are saying it's because millions of people are making fraudulent disability claims to go on the government dole (sometimes after their unemployment benefits run out); and some are saying it's because Americans turned lazy and want free government benefits like food stamps and Medicaid; while economists are arguing whether or not it's either cynical unemployment or structural unemployment.

If you retired today (left the labor force) and went on Social Security, would your boss hire an unemployed "prime aged" person or a young high school graduate to take your place? Or are employers meeting their current demand for goods and services with fewer workers, leaving your spot vacated, while having your previous co-workers to pick up the extra slack?

The same is true for those who could no longer work, quit their jobs, and applied for disability—would an employer look through a stack of applications and hire someone else to replace them?
If you left the labor market today (for any reason at all) wouldn't that theoretically open up one position for one of 92.5 million Americans that are "not in the labor force"—of which a possible 48 million people say they want a full-time job—or one of the 10.2 million people that the labor department currently claims is "unemployed" — and is still a part of the labor force?

While although it's true that there has been a big bump in the number of Baby Boomers retiring (a record high last year), this post make the argument that that is not the biggest factor in the drop of the labor force participation rate—and especially not because of the number of people being approved for a disability claim. It's because there are not enough jobs: 1) for those first attempting to enter the labor force, and 2) to reemploy those who are still unemployed (mostly younger or "prime age" workers—the bulk number of the unemployed).

While although disability claims have risen, last year, actual awards, as well as the net annual increase of those in payment status, have actually declined—while those retiring have greatly risen.
Social Security disability awards
A proportionate number of middle-aged and senior Americans lost their jobs during the recession when an estimated 8.7 million jobs were lost (that many people have said, have been permanent job losses).
A study by the San Francisco Fed:
"Some degree of elevated long-term unemployment may be here to stay ... the primary explanation for historically high long-term unemployment is the persistent weakness in overall economic activity and demand for labor."
But a disproportionate number of these older workers were also never rehired in the aftermath of the recession, as employers are usually more reluctant to hire older workers if they don't have to (for all the usual reasons; such as higher healthcare premiums, etc.) — and even more so if they have been long-term unemployed (as opposed to someone fresh out of college who's willing to work for less pay (hoping to pay off their huge school loans).

The Jobless Trap Job by Rand Ghayad:
"The rate of decline in interview requests appears to drop sharply after six months of nonemployment. Résumés for employed applicants have a 10.25 percent chance of receiving an interview request."
Note: He says for employed applicants, not unemployed applicants. Read more here: There's about a 0% chance for a long-term unemployed middle-aged worker after being unemployed for a year or longer. Read more here from the recent White House report of long-term unemployment.

Odds of finding a job

Odds of finding a job

Since the recession ended in June of 2009, before NET new jobs were being created (and before the unemployment rate had peaked in October of that year), older workers were left out of the midst of any new hiring, and many (if they were old enough) were forced to apply for early Social Security benefits at age 62—which was in 2008 when the first Boomers turned 62—up until 2010, when their unemployment benefits were exhausted (up to 99 weeks), but before they turned 65 for full Social Security benefits in 2011.

From the San Francisco Fed:
"The unemployment share of those who have been out of work 99 weeks or more rose from about 6% in late 2009 to 14% in late 2012."
But some have also argued that, it's NOT because of retiring Boomers that the labor force participation rate has declined, but because of a lack of jobs—for those first attempting to enter the work force—and for those who were laid off in their "prime years" (already out of college but too young to retire).
Abstract: "In this paper, we provide compelling evidence that cyclical factors account for the bulk of the post-2007 decline in the U.S. labor force participation rate." (Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work.)
 A study by the Kansas City Fed:
"An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years. Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment."
 A study by the Philly Fed:
"As of the first half of 2013, roughly 5 percent to 6 percent of individuals in the working-age population are out of the labor force because of disability, 16 percent to 17 percent are out of the labor force because of retirement, and the rest have left the labor force for other reasons."
Other reasons—a lack of jobs perhaps? Shigeru Fujita also noted that the nonparticipation in the labor force (due to disability) raised the overall nonparticipation rate by 1.4 percent (between the beginning of 2000 and the end of 2011); but he also adds,
"In the last two years or so, however, it has been flat, thus making no contribution to the overall decline in the participation rate ... Nonparticipation due to retirement did not rise until the end of the Great Recession, but started to increase significantly in 2010. Since the start of 2012, it has been the only component that has contributed to the increase in the nonparticipation rate...There is no question that more workers dropped out of the labor force due to discouragement during and after the Great Recession and that there are more discouraged workers now than before the recession. These facts clearly reflect the continued weakness of the U.S. labor market."
  • Last year the U.S. had a record number of American workers who retired on Social Security: 1,171,737
  • We also had a record number of high school graduates as well: 3,092,290 (That's a whole heck of a lot more people than retirees....almost 3 times as many.)
By comparison, last year there was only a net gain of 117,156 who were in payment status for Social Security disability. (There were 2,640,100 claims, but only 884,894 awards — minus 767,738 terminations.)
Editor's Note: Despite what media pundits on the cable news channels might say, "millions" of Americans are not leaving the work force to go on disability. And it's not all that "easy" to file a claim either; and the chances of being denied on a claim is much higher than being awarded on one; and it can take an average of up to 3 years to be awarded on a claim after the appeals process is complete—and even longer still before one actually sees their first disability check. So there is nothing "easy" about the process—especially if one is disabled, can't work and has no income. The media pundits only makes the process harder by inviting public scorn upon those who apply for disability benefits.
Of all the Americans who retired on Social Security since 2000 (when the labor force participation rate had peaked) to the end of 2013:
  • 6,365,927 of those were Baby Boomers (the first one retired at 62 in 2008).
  • And just since 2008, we've also had 18,405,242 high school graduates—almost 3 times as many more than we had of Baby Boomers retiring.
Some economists have been saying the drop in the labor force participation rate (LFPR) is mostly due to Boomers retiring and people going on disability. But yet, even some economists at different branches of the Fed disagree as to the reason. This post makes one such reason: New people attempting to enter the labor force and those who are currently unemployed can't find work because there just aren't enough jobs; and that people retiring have little to do with the LFPR. If anything, their retirements should make room for others who have been attempting to find work, but the unemployment rate remains stubbornly high.

Other studies have mentioned that, given the chance, many who have retired (and some of those on disability) would otherwise still be working, had they been given the chance. They applied for Social Security benefits only because there were a lack of jobs, and so they retired (left the labor force) for a lack of any other source income.

From John Quiggin (professor of economics at the University of Queensland and author of Zombie Economics) who wrote a piece called The Golden Age:
" is distributed unequally, and perversely, in other dimensions as well. And yet, in the English-speaking countries at least, this has not meant more leisure so much as more time in retirement, unemployment or otherwise involuntarily excluded from the labour force. The result has been an inequality of leisure, the counterpart to the growing inequality of income. Particularly in the US, families are becoming polarised. On the one hand there is the two-income class of economically successful couple households in which both partners work full-time or more. On the other is the zero-income class, with one or two adults dependent either on welfare benefits or else on intermittent and insecure low-wage employment."
This post doesn't argue as to WHY there is a lack of jobs (lack of demand, automation, robots, guestworker visas, offshoring, etc.), just that there are, and that this is by far the biggest reason for the decline in the LFPR—and not because "millions are leaving the work force" to go on Social Security or food stamps—or to be eligible for Medicaid under Obamacare (unless of course, a lack of healthcare insurance was a primary reason for holding a job to begin with).

The LFPR has been going down since 2000 — long before the very first Boomer took an early retirement at age 62 in 2008—or before Medicaid was expanded—or before the Great Recession displaced millions of workers.

Yes, there was a bump in retirements starting in the 2008/09 period during the mass layoffs, but that probably had more to do more with a lack of jobs for middle-aged folks and seniors after being laid off—because most Boomers had planned on working well past their normal retirement age, according to a previous AARP survey—when two thirds expected to delay retirement and half had expected to never retire. In 2011 one study shows 36% are delaying retirement because of a poor economy.

A senior strategic policy adviser at AARP notes that in 1985, just over 18 percent of people ages 65 to 69 were in the labor force. By 2010, the percentage of workers in that age group nearly doubled to 32 percent. According to a poll conducted by AARP in 2010, 40 percent of all Baby Boomers had planned to work "until they drop" (if they weren't laid off and/or never rehired again).

This post shows that there were far more many people graduating from high school who couldn't find work, than there were people retiring or going on disability—and that the decline in the labor force participation rate was mostly due to a lack of available jobs. (See all the data here -- or a simpler table at the bottom of this post.) There have been far more "non-starters" and unemployed Americans than there have been "quitters" (e.g. retirees, disabled persons and lottery winners leaving the labor force).

Some people suspect that this argument of attributing the decline in the labor force to the retirement of Baby Boomers and the disabled is twofold:
  1. the usual attacks on "entitlements" (Social Security),
  2. political cover for the real reasons as to why there aren't enough jobs in a growing population.
Currently the U.S. birth rate (reported at its lowest since the Great Depression—at 2.5 million as of last year) is lower than the current rate of high school graduates every year (over 3 million)—and there are currently over twice as many high school graduates every year than there are those retiring and going on disability (1.3 million last year—and this is exponentially escalating—far more so than the number of Boomers retiring).

The numbers below are from Social Security Administration's statistics for retirees and those on disability—and the number of high school graduates—from January 2000 to December 2013 (The LFPR decline began in April 2000, as shown in a chart further below.)
-- 40,131,044  Number of new high school graduates that were expected to-join to the labor force.
-13,292,330  Number of Social Security retirees and those who are disabled that left the labor force.

= 26,838,714  Number of jobs that were needed to keep the labor force participation rate near-even at the all-time high level in April of 2000.

-- 91,808,000 Not in the labor force in December 2013
-- 69,254,000 Not in the labor force in December 2000
- -
= 22,554,000 The difference, so it call comes down to a lack of jobs, not Boomers retiring.
Early Social Security Retirees (age 62) during Recession

In the chart below, look at the bump in the blue line ( Social Security expenditures) during the period of the recession (from December 2007 to June 2009). Do you see the bump from 2008 to 2009? That could most likely be early retirees at age 62 (in 2008), possibly due to layoffs and lack of jobs. And the chart below that shows this bump relative to the consistent rise in Social Security expenditures, both before, and after the recession.

Social Security expenditures

Social Security expenditures in recession

The chart below shows the labor force participation rate (LFPR) that was mentioned earlier, from when it peaked in April 2000 to its steady decline in 2014. There was a big drop in 2010 AFTER the official recession had already ended in 2009, and could imply that time period when 99 weeks of unemployment benefits were exhausted for those who were laid off during the earlier mass layoffs of 2008 (when Boomers first started retiring) and early 2009.

Labor force participation rate

Other Info from AARP Survey
According to a survey in 2013 conducted by MetLife for AARP, in both 2011 and 2012, about half of all Baby Boomers said they retired before becoming old enough to qualify for an early Social Security benefit. As a vast majority of Americans rely on these benefits in retirement, so this would indicate high rates of unemployment in this age group. One AARP survey says:
  • In 2012, 10% of Boomers said they retired because they were laid off or couldn't find a job.
  • In 2013, 6% of Boomers said they retired because they were laid off or couldn't find a job.
- Years 2000 to 2013 Newly retired Boomers Newly disabled people (all ages)
Awards minus terminations
New high school graduates
2000 n/a n/a 2,553,844
2001 337,829 231,849 2,569,200
2002 353,363 269,798 2,621,534
2003 341,474 329,692 2,719,947
2004 421,470 323,991 2,753,438
2005 502,217 326,918 2,799,250
2006 516,174 287,097 2,815,544
2007 553,626 289,676 2,893,045
Boomers turn 62 2008 748,047 325,848 3,001,337
2009 1,239,768 361,910 3,039,015
2010 1,079,409 415,597 3,068,550
Boomers turn 65 2011 1,006,724 371,357 3,103,540
2012 1,120,242 251,728 3,100,510
2013 1,171,737 114,789 3,092,290
Total change since 2000 Retired and disabled 13,292,330 High school graduates

Of all Americans retired on Social Security since 2000 (when the LFPR peaked), 6,365,927 were Baby Boomers (since 2008). And since 2008, we've had 18,405,242 high school graduates—almost 3 times as many more than Baby Boomer retirees. Here is all the data to PART II of a previous post and here is PART I (they are also posts about the Labor Force Participation Rate.) Cross-posted at the Economic Populist.

1 comment:

  1. UPDATE from the New York Fed

    The Job-Finding Rate

    "The job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work ...both the vacancy-to-unemployment ratio and matching efficiency declined during the Great Recession and have not recovered since ... the most important factor in the low job-finding rate is the persistently low level of vacancies per unemployed."