Is Working Longer the Answer for an Aging Workforce?
One of the most important labor market developments of the last century was the sustained trend toward earlier retirement among American men. This trend came to at least a temporary halt in the mid-1980s. Since then, male participation rates at older ages have stabilized or even increased slightly, while older women's participation rates have begun rising dramatically. The dominant factor driving the trend toward earlier male retirement was a long-term increase in economic wealth, which permitted workers to enjoy rising living standards even as they spent a growing percentage of their lives outside the workforce. The expansion of Social Security and of employer-sponsored pension plans, and the introduction of mandatory retirement rules, also encouraged earlier retirement over much of the last century. In recent years, many public policies and private institutions that encourage early retirement have been modified. Mandatory retirement was outlawed in most jobs. Social Security is no longer growing more generous, and coverage under company pension plans is no longer rising. In addition, both Social Security and private pensions have become more "age neutral," meaning that they provide either weaker incentives or no incentives to retire at particular ages, such as age 62 or age 65. Finally, the scheduled rise in Social Security's normal retirement age over the next two decades will encourage later retirements, at least modestly. An open question is whether further changes are needed. Given that labor force growth is slowing and Americans are enjoying longer and healthier lives, efforts to encourage people to work longer could have important benefits both for individuals and for the national economy. On the other hand, rising labor productivity, increased work effort, and more saving during the pre-retirement years could allow Americans to enjoy higher living standards even if they choose to spend more years in retirement. If opinion polls are to be believed, most workers favor preserving options for early retirement, even if it means heavier contributions to the retirement system during their working careers.