THE STASH OCTOBER 10, 2009
Zubin did a fascinating item last week about how, contrary to the conventional wisdom, the recession might be causing to people to retire sooner rather than later (in the aggregate). He pointed to the conclusion of this paper by economists Courtney Coile and Phillip Levine:
When the unemployment rate rises, more workers between ages 62 and 69 retire, particularly those with less education. ... On net, we predict that the increase in retirement brought about [by] the recent rise in unemployment will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.
Specifically: Coile and Phillip predicted that 258,000 workers would postpone retirement because of a drop in the value of their nest eggs, while 378,000 would retire earlier than planned because they were out of work and unlikely to find a new job.
But, as it happens, the bloggers over at the Office of Management and Budget recently did an item on the same phenomenon and came to a different conclusion:
[L]abor force participation rates have actually increased among those near and at traditional retirement. Since the end of 2007, labor force participation has increased by 1.4 percentage points among men above age 65 and even more among men ages 62-64, while it has decreased by about 1 percentage point among younger men. Simply, older workers are forgoing retirement and working longer.
What explains the discrepancy? If you read the Coile and Levine paper, you notice that it's basically backward-looking: The authors use 30 years worth of data to derive relationships between people's retirement decisions and the value of their savings and the availability of jobs. Then they assume that these relationships basically apply to the current recession, too.
By contrast, OMB stresses that the relationships we've observed in recent decades appear to have broken down, so you can't extrapolate from previous recessions to this one:
During the four recessions between 1970 and 2000, labor force participation rates among older men consistently decreased more than the participation of younger men.
So is this recession really so different than the past when it comes to older workers? Part of the answer depends on how finely you break down the data. If you group together people aged 55-64, then this recession actually looks pretty similar to its recent predecessors. But if, like OMB, you split the group into people aged 55-59 and people 60 and over (and especially 62 and over), then this recession does look different. The OMB numbers suggest we're seeing a change in behavior from the people closest to retirement age.
P.S. An interesting sidenote: You might be inclined to double-check these conclusions by looking at Social Security applications--the idea being that we'd see a spike in applications if the recession is driving people into unexpectedly early retirements. And indeed, as Zubin notes, there has been such a spike: The Social Security Administration recently "announced that applications for the last fiscal year were 47% higher than projected."
On the other hand, Social Security applications can be somewhat misleading, for two reasons: 1.) Social Security applications traditionally rise during a recession, as people go to abnormal lengths to qualify for benefits. (In particular, people who don't normally think of themselves as disabled often start claiming disability benefits.) 2.) Just because you claim Social Security retirement benefits doesn't mean you've dropped out of the labor force. Many people start drawing Social Security benefits even as they continue looking for a job. If they find one, their benefits fall. But typically in such a way that working is still a good deal. So the rise in Social Security applications doesn't in itself mean a rise in retirements. Though it certainly could...
P.P.S. Which brings us to a final point: When looking at this stuff, it's important to keep in mind that all the data is still fairly preliminary. We won't really have a solid handle on what's going on until long after the recession ended.