Losing a National Resource in the Workforce
Dear Rich Lifer,
The number of older workers participating in the labor force is lingering at its lowest level since the beginning of the pandemic last year.
The labor force participation rate — the portion of the population working or seeking work — for Americans over 55 has fallen from 40.3% in February of 2020 to 38.3% a year later. This change represents 1.45 million people no longer in the workforce.
When the pandemic first hit, prime-age workers aged 25-54 saw the most dramatic drop in the labor force participation rate, dropping from 82.9% in February last year to 79.8% in April.
However, the numbers for this group have made significant rebounds and as of February, resting at 81.1%.
In the charts below, you can see exactly how recovery has compared between the two groups…
Why Are We Seeing This Trend?
According to Lydia Boussour, lead U.S. economist at Oxford Economics, the reason for this lack of rebound of the past year is due to the specific health risk that the coronavirus poses to older Americans.
Public health officials have warned that the severity of illness from coronavirus increases with age. The CDC reports that among those who contract the virus, the death rate for those aged 50-64 is nearly nine times that of those aged 30-39.
This is largely why older people have been deterred from reentering the workforce. Instead, many of these workers opted for early retirements and will likely never return to the workforce.
Government data compiled by the Federal Reserve Bank of Philadelphia revealed that the proportion of the working-age population not in the workforce due to retirement rose to 19.3% in the fourth quarter of 2020 from 18.5% a year earlier, just before the pandemic.
This increase accounts for about 2.4 million workers who have retired since the pandemic — this is double the number from 2019, according to Ms. Boussour.
Historically, the likelihood of seeing workers who decided to retire come back into the labor force is quite low. So we do think that some of the drop in the participation rate with older workers is likely to remain permanent.
How Is This Affecting the Overall Economy?
When we look back to the economic recovery after the 2008 recession, we can clearly see that the exit of older workers contributed to the reversal of gains in the economy overall.
Economists broadly agree that a smaller labor force constrains the economy. Economic output depends on the number of workers and how productive they are. Therefore, a decline in participation will affect economic growth if it is not reversed.
Teresa Ghilarducci, a professor of economics at the New School who studies retirement issues, also believes that a decline in participation will weaken U.S. productivity.
Productivity (output per hour) refers to how efficiently workers complete tasks. According to Ms. Ghilarducci, older workers bring invaluable experience and expertise into the workplace, so when older people are pushed “out of the labor force before they’re ready, you lose a lot of the nation’s resources.”
Being forced to retire before you had planned also necessitates people turn to social safety nets such as Medicaid and elderly assistance programs.
We have seen job losses during the pandemic concentrated in low-wage industries. And according to Federal Reserve data from 2019 (the most recent available), less than 40% of families in the bottom half of the U.S. income distribution are invested in a retirement plan.
“If you don’t get people to a comfortable retirement, then instead of having them be stable, you’re going to have them be the most vulnerable in society,” Ms. Ghilarducci said.
In other words, if older Americans are not prepared to retire, the inevitable result will be more money needed for social welfare programs.
Reentering the Workforce: Easier Said Than Done
Older workers who are out of work but not yet ready to retire are also having a hard time finding employment. A recent AARP survey of older unemployed adults aged 40-65 revealed that more than half of those surveyed were worried their age would limit their ability to find a job.
According to an AARP analysis of Labor Department data, the average length of unemployment for workers aged 55 to 64 was 32.5 weeks in February 2021, up 25% from the 25.9 weeks reported in February 2020.
This is significantly longer than for the unemployed as a whole, which averaged 27.2 weeks this February.
But, it’s not all doom and gloom. With vaccine distribution greatly increasing, more jobs are being created as businesses open back up. According to the CDC’s website, 49.2% of the population over the age of 65 is fully vaccinated, and 72.8% have received one dose. 15.8% of the population as a whole has been fully vaccinated, and 28.6% have received one dose.
Plus, fiscal stimulus is expected to increase economic growth faster than it has since the 1980s.
Both of these factors mean that older adults who have held off on retiring will likely have more prospects very soon.
Susan Weinstock, Vice President of financial resilience programming at AARP, said she had recently been hearing more from employers expressing interest in hiring older workers. (This had definitely not been the case at the beginning of the pandemic.)
We hope that this situation can also serve as a reminder to get your retirement savings back on track…
According to Fidelity Investments’ 2021 State of Retirement Planning Study, more than 4 in 5 working Americans said the pandemic’s economic fallout affected their retirement plans.
If we have learned anything from the last year, it’s that unpredictability in life is a given, and it’s best when we can plan around unknowns to save us from the fear and stress when an emergency inevitably strikes.
So take the time today to review your savings accounts and make some financial goals for 2021. Your future self will thank you…
To a richer life,
The Rich Life Roadmap Team