I would like to thank the Commission for the opportunity to join you today. I will limit my comments to the employment situation of older workers and also provide statistics on the financial security of these workers.
Let me begin with the recent business cycle. According to the National Bureau of Economic Research, the Great Recession that began in December 2007 officially ended in June 2009 after 18 months—the longest economic downturn since World War II. But, for America’s workers, persistent high unemployment rates means the sense is that the Recession has not ended. This recession indiscriminately impacted American workers from young to old and less to more educated. No matter which indicator of labor market activity you consider, labor market conditions during this recession were the worst on record since the late 1940s.
The passage of the ARRA in March 2009 immediately put more money in the pockets of Americans through the largest tax cut to middle class Americans ever, and stabilized state and local budgets by dramatically increasing federal support for education, public safety and Medicaid. The result was a stabilization of the job losses that began in December 2007. As a result, so far in 2010, private sector employment has climbed by over 1.1 million workers. Unfortunately, there are still nearly five job seekers for every job opening and the unemployment rate has remained steady at 9.6% since August.
The unemployment rates among all the major subgroups have reached historic highs, especially for youth. In December 2007 the seasonally adjusted unemployment rate for workers between the ages of 16 and 24 stood at 11.8 percent. By April 2010 it had risen 7.8 percentage points to 19.6 percent: roughly 60 percent greater than the increase in overall unemployment.
In October of this year, the unemployment rate for workers 55 years and older is 6.8 percent; a statistic that seems reassuring because it is lower than the national average. And, while unemployment rates for men 55 and over tends to be a little higher than for those 45 to 54, during the last two years, it has been a little less than for those 45 to 54 in age.
But the simple figure masks the detail. Older workers are also confronted with record levels of unemployment. Unemployment for workers 55 and older rose from a pre-recession low of 3.0 percent (November 2007) to reach 7.3 percent in August 2010, making the past 22 months one of the longest spells of high unemployment workers in this age group have experienced in 60 years. Unemployment rates reached all-time highs (since BLS began reporting monthly data in 1948) for older men and women. But it was most severe for men, because the recession hit male-dominated industries like construction and manufacturing particularly hard. In August, men’s (55 and over) unemployment rate was 8.4 percent and women’s (55 and older) unemployment rate was 6.9 percent; both are the highest level in 60 years history of data.
Duration of Unemployment
Although the rate of unemployment among older workers is lower than that for their younger counterparts, older persons who do become unemployed spend more time searching for work. The longer duration of unemployment among older workers is reflected in a higher proportion of the unemployed who have been jobless for extended periods. For example, more than half (56 percent) of unemployed jobseekers 55 and older had been unemployed for 27 weeks or longer in October 2010, compared with 30 percent of unemployed workers aged 16 to 24 years and 48 percent of unemployed workers aged 25 to 54 years. Workers aged 55 to 64 years and older had an average duration of unemployment of 44.6 weeks (not seasonally adjusted), compared with 27.8 weeks for those aged 20 to 24 years and 33.8 weeks for those 25 to 34 years old.1
Structural and cyclical changes in the U.S. economy have contributed to a weakened labor market with increased worker displacement. Displaced workers are defined as people twenty years and older who lost or left jobs because their plant or company closed or moved, because there was insufficient work for them to do, or because their position or shift was abolished.
The most recent recession coupled with globalization, technological changes, and the long-standing decline of U.S manufacturing base has produced involuntary layoffs in nearly all sectors of the economy. According to the BLS, from January 2007 through December 2009, 6.9 million workers were displaced from jobs they had held for at least 3 years; by January 2010 reemployment rates for workers ages 20 to 24 and 25 to 54 were 55 and 53 percent.
When older workers lose jobs, they are less likely to get another one, according to BLS data. For example, reemployment rates for older workers--ages 55 to 64 and 65 years and over--were 39 and 23 percent. As the age of workers increased from 20 to 65 and over, the chances of reporting displacement because a position or shift had been abolished increased, while the chances of reporting displacement because a plant or company closed down or moved decreased. 2
Older unemployed workers in most cases have an extensive work history and attachment to the labor market, which implies that they would rather be working. But, as I mentioned, there are five job seekers for everyone one opening, meaning many unemployed workers cannot find a job And, as duration of unemployment increases these negative effects of unemployment would tend to affect those unemployed workers looking for jobs.
The population and the labor force are growing older. According to the Census Bureau, there will be 210 million Americans aged 25 and older by 2010. 3 By 2020, this number will increase to more than 235 million or by 12 percent. Most of the growth will occur among the aged population those people aged 65 and older. The Census Bureau estimates that between 2010 and 2020, the number of people between the ages of 25 and 64 is projected to increase by 13 percent and the number of people aged 65 and older is projected to grow by 79 percent.
Labor Force Participation
Since last month, the labor force participation rate fell to 64.5 percent, which is the lowest participation rate since November 1984. 4 This decline is reminiscent of previous economic downturns. However, despite the weak labor market that reduced overall labor force participation rates, older workers are either staying on the job or are looking for work at increased rates and this trend is projected to increase will into the future.
In September, adults age 65 and older made up their largest share (16.6 percent) of the labor force since June 1970. BLS and Census Bureau data reveal that there has been a trend toward more full-time employment among older Americans who work and that more than quarter (29.4 percent) of women and more than a third (37.9) of men between ages 65 and 69 are in the labor force. Those who are between the ages of 70 and 74 years old, 15 percent of women and 22.2 percent of men are still working or looking for work.
Looking Ahead, will this trend continue?
According the most recent BLS data the civilian labor force 5 (those either working or seeking employment) is projected to grow by 12.6 million between 2008 and 2018, to 166.9 million persons. This growth rate of 8.2 percent for the 2008 to 2018 period is far less than the 12.1 percent experienced during the 1998 to 2008 period. As the Baby Boom Generation grows older and continues their trend of increased labor force participation, the number of persons age 55 years and older in the labor force is expected to increase by 43.0 percent, compared to a decline for the 16 to 24 year old age group during the 2008-18 period. By 2018, the 55 and older age group is projected to make up nearly one-quarter of the labor force in 2018. Whereas, the 16 to 24 age group will only account for 12.7 percent of the labor force in 2018. BLS also projects that those aged 65 and older will increase from 22.4 percent to 33 percent, which is a more recent trend. Just one decade ago their labor force participation went virtually from the ten years prior to that.
What has led to this increased attachment to the labor market for older workers?
Even though older workers’ unemployment rate has more than doubled since the onset of the Great Recession, they have stayed in or entered the labor force. The recession’s severe shock to wealth may have compelled older workers to stay in the labor force longer. Some have suggested that the increased labor force participation of older workers reflects both the need of many near retirees to work after large losses in their retirement accounts and the need of older workers in general to ensure adequate postretirement incomes to address increased life expectancy. 6 The fact that the rise in labor force participation for this group began well before the recent financial crisis, plus the absence of an accelerated rise in participation rates during the recession, suggests that the collapse in the financial markets and the declines in asset values were not the only factors associated with the recent rise in participation rates among older workers.
Other plausible explanations for this increase in older-worker labor force participation are: the decreased availability of retiree health benefits push older people to continue working in order to get health insurance or at least until they become eligible for Medicare at 65. Employer-sponsored health plans are also disappearing; for example, a review of the Census Bureau data shows a rise in the uninsured for those 45 to 64 from 14 percent in 2007 to 16.1 percent in 2009. The most pronounced change is for workers 45 to 54: in 2000 11.6 percent were uninsured, and that increased to 17.8 percent by 2009; for those 55 to 64, the share that was uninsured increased from 11.6 percent in 2002 to 13.9 percent in 2009.7
Many Americans are worried their retirement funds may not be sufficient, and young and old alike are concerned about their overall retirement security. Social Security was not meant to be the only source of retirement income and many Americans are not saving enough for a dignified retirement. In addition, many families have seen their individual retirement accounts (IRAs) and 401(k)-type plan accounts lose value during the recent economic downturn. Twenty-seven percent of workers report they have virtually no savings or investments (or less than $1,000 in savings) and 54 percent of workers report the total value of their household saving is less than $25,000. Even those workers who have saved are likely to find their savings, whether through their employer plan or personal savings, to be inadequate.
While many workers are able to achieve a certain level of retirement security through their employer-sponsored pension plans, low- and middle-income workers often lack access to workplace plans. In 2009, 61 percent of private-sector workers had access to defined contribution plans and of these 70 percent participated; 21 percent of private-sector workers had access to defined benefit and of these, 93 percent participated. In 2007, 54 percent of all households had a retirement account and their median account balance was $45,000.
Those workers who do have access to employer-sponsored defined contribution plans tend to save too little or do not participate in the plan at all. Further, with the trend away from sponsorship of defined benefit plans and a dramatic increase in the offering of 401(k)-type plans, a number of investment and other risks have also been shifted onto the shoulders of American workers. As a result, workers assume most of the risk for their retirement security, have limited access to a guaranteed benefit stream, and experience greater uncertainty about the adequacy of their account balance. These trends, combined with increasing life expectancies, significantly increase the need for policies that promote the employer-sponsored retirement system.
An important consideration for workers contemplating retirement is whether their future income will be adequate to maintain their standard of living. The proportion of men and women who receive income from a pension or other retirement plan increases with age. A CRS Report for Congress finds that in 2008, only 16 percent of men aged 55 to 64 received incomes from a pension or other retirement plan. Among those aged 65 or older, 42 percent had income from pensions or retirement savings plans in 2008. The patterns among women were similar: only 12 percent of 55 to 64-year-old women received income from pensions or retirement savings plans in 2008, whereas 29 percent of those aged 65 or older received such income. 8 The study also finds that men aged 55 to 64 who were receiving pension income in 2008 decline to 16 percent compared to 23 percent who received pension income in 1990. Over the same period, not only did the proportion of men aged 65 or older receiving pension income fell, their income from pension declined from 49 percent in 1990 to 42 percent in 2008. As for the proportion of women aged 55 to 64 with pension income remained relatively stable at 11 percent to 12 over this same period. And, there was little change in the portion of women aged 65 and older who received income from retirement plans over this period, remained relatively steady at 29 percent.
The recent economic downturn has caused most investors to be concerned about their retirement savings. Those who were heavily invested in equities have been hit the hardest and a significant percentage of older investors were among that group. Investors are often encouraged to redistribute some of their retirement investments toward less-risky prospects as they age. According to the Federal Reserve’s Flow of Funds net worth for households and non-profit groups declined by $1.5 trillion to $53.5 trillion, which is equivalent to a 2.8 percent fall in total wealth. Household holdings of corporate equities decreased in value by $940.4 billion in the second quarter, according to the Fed’s report whereas the value of real-estate investments increased by $120.7 billion. Also, owners’ home equity which reached a high of 59.7 percent at the peak of the housing boom in 2005 currently stands at 40.7 percent an increase from 40.3 percent in the first three months of the year.9
Although economic pressure from the recession is causing more seniors to re-enter or staying longer in the workforce, those who lose a job tend to face longer periods of unemployment than younger workers do. Long stretches without paid work may force older workers to spend down their savings at time when they should be saving for retirement. Debt could have diverse implications for those near retirement. High levels of debt may lead older workers to work longer. Debt may also reduce the stability of a household's accumulated wealth, which would have to be spent down to repay debt when income is more limited. Indebtedness, especially from high-interest consumer borrowing, could also leave older workers fewer resources if faced health and income shocks. According to recently released Federal Reserve Bank 10 data, aggregate consumer debt continued its seven quarters decline. As of September 30, 2010, total consumer indebtedness was $11.6 trillion, a reduction of $922 billion (7.4 percent) from its peak level at the close of third quarter of 2008. The FRB also reported that third quarter 2010 household delinquent debt continues to decline and currently account for about $1.3 trillion or 11 percent of consumer debt, representing an 8.2 percent decline from a year earlier. However, the proportion of current mortgage balances that transitioned into delinquency rose slightly from 2.6 percent to 2.7 percent, after about a year of decline.
In closing, during a deep and long recession, the lengths of time that people remain unemployed increases. Older workers have been overwhelmed in this current recession and their numbers are high among the worst indicators. They are the slowest to be reintegrated from unemployment to employment, which indicates that their job search is longer and more challenging. This comes at the cost of human capital depreciation for older workers.
3 Source: Population Division, U.S. Census Bureau. Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2010 to 2050 (NP2008-T2)
6 Kristie Engemann and Howard Wall, "The Effect of Recessions among Demographic Groups," Review (St. Louis, Federal Reserve Bank of St. Louis), January/February 2010, pp. 1–26, on the Internet at http://research.stlouisfed.org/publications/review/10/01/Engemann.pdf
8 Patrick Purcell, Older Workers: Employment and Retirement Trends, CRS Report for Congress, Updated September 16, 2009. Available at
9 Source : Federal Reserve statistical release Available at http://www.federalreserve.gov/releases/z1/current/z1.pdf
10 Source: “Quarterly Report on Household Debt And Credit ," Federal Reserve Bank of Boston, November 2010. Available at http://www.ny.frb.org/newsevents/news/regional_outreach/2010/DistrictReport_Q32010.pdf )