Rising Senior Unemployment and the Need to Work at Older Ages

Rising Senior Unemployment and the Need to Work at Older Ages Richard W. Johnson September 2009 THE URBAN INSTITUTE 2100 M STREET, N.W. / WASHINGTON D.C. 20037 The Retirement Policy Program A crosscutting team of Urban Institute experts in Social Security, labor markets, savings behavior, tax and budget policy, and micro-simulation modeling ponder the aging of American society. The aging of America raises many questions about what’s in store for future and current retirees and whether society can sustain current systems that support the retired population. Who will prosper? Who won’t? Many good things are happening too, like longer life and better health. Although much of the baby boom generation will be better off than those retiring today, many face uncertain prospects. Especially vulnerable are divorced women, single mothers, never-married men, high school dropouts, and lower-income African Americans and Hispanics. Even Social Security—which tends to equalize the distribution of retirement income by paying low-income people more then they put in and wealthier contributors less—may not make them financially secure. Uncertainty about whether workers today are saving enough for retirement further complicates the outlook. New trends in employment, employer-sponsored pensions, and health insurance influence retirement decisions and financial security at older ages. And, the sheer number of reform proposals, such as personal retirement accounts to augment traditional Social Security or changes in the Medicare eligibility age, makes solid analyses imperative. Urban Institute researchers assess how current retirement policies, demographic trends, and private sector practices influence older Americans’ security and decisionmaking. Numerous studies and reports provide objective, nonpartisan guidance for policymakers. The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The author is grateful to Corina Mommaerts for outstanding research assistance. Financial support was provided by the National Institute on Aging (grant number R01 AG013180, M.E. Szinovacz PI). The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders. The Urban Institute, 2100 M Street, N.W., Washington, D.C. 20037 Copyright © 2009. Permission is granted for reproduction of this document, with attribution to the Urban Institute. Rising Senior Unemployment ii Contents Abstract ......................................................................................................................................... iv Introduction.....................................................................................................................................1 Unemployment Rate Trends for Older Workers.............................................................................2 The New Work Imperative for Older Adults ................................................................................. 7 Policy Implications ........................................................................................................................ 9 References.................................................................................................................................... 12 iii Retirement Policy Program Figures 1. Monthly Unemployment Rates, Age 25–54 and Age 65 and Older, January 1948 to July 2009 (three-month moving averages) ....................................................................................................4 Tables 1. Unemployment Rates at Older Ages during the 1981–82 and 2007–09 Recessions, by Sex and Age .............................................................................................................................5 2. Labor Force Participation Rates during the 1981–82 and 2007–09 Recessions, by Sex and Age .............................................................................................................................8 Rising Senior Unemployment iv Abstract Unemployment rates for older workers reached record levels in 2009, partly because fewer workers eligible for early retirement benefits are dropping out of the labor force. Growing concerns about the adequacy of retirement savings and whether retirees will have enough money to live comfortably in later life appear to have discouraged early retirement. Instead, more older workers are now remaining in the labor force and searching for work after they lose their jobs. The need for older adults to keep working raises the imperative for new policies that help address the special challenges that older job seekers face. 1 Retirement Policy Program Introduction The 2007–09 recession hit workers hard. The unemployment rate reached 9.7 percent in August 2009, the highest level in 26 years. That