Tuesday, September 14, 2010

United States: Analysis of Increased Labor Participation Rates of Older Workers

An Economic Letter ("Labor Force Participation and the Future Path of Unemployment"), authored by Joyce Kwok, Mary Daly, and Bart Hobijn, all of the Federal Reserve Bank of San Francisco, finds, among other things, that in the case of the labor force participation rate of older workers, secular trends generally overwhelm cyclical patterns. Thus, while participation of workers 55 and over consistently fell from the 1950s through the 1990s, when Social Security, pension, and retiree health benefits increased substantially and conditions were generally favorable for early retirement, in the 1990s, as the value of those retirement programs eroded, older workers reversed the downward trend, and their labor force participation rate has risen steadily, even through cyclical downturns.
Many factors potentially explain the recent increase in older-worker labor force participation. People in this age group increasingly are able to delay retirement because they are healthier and longer lived than previous generations of older workers. They have an incentive to work longer in order to build assets in defined-contribution pension plans and to qualify for larger Social Security benefits. And the rapid growth of health-care costs and decreased availability of retiree health benefits push older people to continue working in order to get health insurance, at least until they are 65 and eligible for Medicare.
Source: Federal Reserve Bank of San Francisco Economic Letter 2010-27 (September 13, 2010)

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