This is a transcipt of a keynote orignally presented at the Association of Social Economic's 2020 ASSA Reception.

 

(Photo by: Martha Susana Jaimes)

 

 

The Gray New Deal: General Theory of Employment, Retirement, and Money

Teresa Ghilarducci

Keynote for the Association Social Economics’ ASSA Reception

January 2 6:30 pm

San Diego ASSA

 

Over the last thirty years, we have witnessed a doomsday for pensions. The vast majority of the ten thousand baby boomers turning 65 every day do not have enough income to maintain their standard of living. For the first time in modern history, the American elderly will be relatively worse off than their parents and grandparents. If nothing happens, almost half of middle-class workers over 50 will be poor or near-poor retirees by 2030. Many will turn to work—any kind of work. The failing do-it-yourself American pension system is causing the coming humanitarian and political crises and a deep disturbance in labor markets.  

There are two policy tracks addressing the coming old-age income crises. One track fights age discrimination, promotes job retraining, extolls the benefits of paid work and does not prioritize securing retirement income.

The other track is a Gray New Deal. A Gray New Deal recognizes that civilized democratic societies provide adequate pensions, allowing people to retire in dignity.

A Gray New Deal competes with what I call the “working longer consensus.” Doubtless members of the Association of Social Economics remember the 1980s global economic policy framework, the Washington Consensus, which promoted pro-market, pro-austerity policies. The Washington Consensus was so named because it came from Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank, and the U.S. Treasury and was supported by academics.

Of course, the Association for Social Economics was founded on the recognition that economic behavior is the result of complex social interactions with ethical consequences. We have seen complex problems shaped by economic forces and institutions treated solely with individualistic solutions. The Washington Consensus was a good example of that – it was a set of technocratic, market-based policies to fix sluggish economies caused by too much government.

The “working longer consensus” comes from American consulting firms, the World Bank, the European-based OECD, the press and academic work.  Like the Washington consensus, the “working longer consensus” promotes a set of technocratic, market-based policies to, again, fix sluggish economies this time caused by aging populations.  The “working longer consensus” aims to cut pensions and lengthen working lives.

The promise is that older workers will be healthier by working more. The promise of the “working longer consensus” is that economies will be richer when older people work more. Children will be better off when governments spend more on them and less on the elderly. Making older people work longer is the ultimate “free lunch” policy solution – all winners, no losers. But there is no free lunch. Making older people work longer creates a number of specific losers.

Today, we see more and more advocacy on behalf of the “Working longer consensus.” The Economist [1] lionized a new OECD report, “Working Better with Age,” concluding that the “employment of older workers is vital if prosperity is to be maintained.”

All we need is “silver surfers,” the Economist wrote. Elders need to modernize and learn to “surf” computer technology. Calls for retraining the elderly are often paired with shaming messages, such as  “if you don’t have enough money to retir,e it is your fault,” or, “fighting for  pensions means you will you hurt future generations.” Urban Institute Economist Gene Steurele’s 2014 book, Dead Men Ruling, describes a “gerontocracy” that persistently chooses  pensions over children.

In 2019, the World Economic Forum and the consulting firm Mercer recommended that most nations cut benefits by raising the retirement age, even in Japan and the United States. Japanese and American workers already work longer than others in the OECD and have the highest rates of elderly poverty -- 19 percent in Japan and 21 percent in the U.S.

However, there is pushback. In September 2019, a Bank of Japan (BOJ) official argued that  Japan’s economy is suffering because the country’s dearth of pensions caused too-high savings rates and too many elderly workers are toiling in low productivity, part-time jobs. What the Japanese economy needs, says the Bank of Japan, are higher pensions and better jobs for the elderly. The BOJ is hinting at the core of a Gray New Deal.[2]

There is more pushback. Pension tensions cause political instability. Consider France.  Yesterday, the leader of the General Federation of Labor dismissed a bid for compromise on Macron’s plan to consolidate French pension plans by calling for, well, “strikes everywhere.” Take Italy. The Five Star and National Front movements owed much of their popularity to their resistance of the previous Italian government’s increase in the retirement age in 2011.

But the “working longer consensus” advocates also push back. Just last year, Italian economist Edoardo Campanella wrote in Project Syndicate that the underfunded Italian pension system was overly generous and the only solution was older Italians working more. Meanwhile, the Italian economy can’t fully employ prime-aged adults, much less any more elders seeking work. No wonder there is political dissonance.

Here are the facts. Populations are aging. The median age of OECD residents has risen from 40 to 45 since 2008 due to low fertility rates, better health care, and improvements in baseline sanitation. But while these factors contribute to an aging population, they don’t lead to an iron-clad conclusion that older people should work more. In fact, economic progress in democratic countries means the opposite. Leisure is a normal good. In the United States after World War II, almost every demographic group lived longer and children and older men worked less. Workers and unions struggled to get the weekend. But universal public education for children under 16 became standard, as did paid vacations and now – finally- paid family leave. But retirement, the ultimate paid time off, is now contested. 

FDR and Congress established Social Security in 1935. Back then, most working men died in their boots. They never retired. Instead, they lived alone as they aged or in township poor houses reserved for the mentally insane and poor. The elderly did not generally live in the bosoms of extended families. Then, as now, poor elderly likely had adult children with their own financial problems who don’t have extra bedrooms. In 1934, one year before Social Security was passed, the pressure was on. Twenty-eight states had some sort of plan to cover the aged. The states moved before the federal government.

Social Security now provides over 50 percent of income for over 50 percent of aged households and almost all income for over 13 percent.

I hope you walk away tonight forever banning the wrong-headed image that the United States has a three-legged stool to support the aged, where the elderly receive income in equal parts from Social Security, employer–based pensions, and personal assets. The reality is far different. The Urban Institute predicts middle-class Gen Xers, those ages 45-55 today, will get over a third of their income from Social Security and about 22  percent each from working, employer pensions and assets (mainly from imputed rent of owning houses) when they are age 67.

Earnings are fast becoming the new pensions. And working is the new retirement.

The liberal interpretation of the welfare state is that it substitutes for kin – the welfare state redistributes resources between families to help the unemployed older parents, children, disabled persons, etc. A political economy interpretation of the welfare state is that it regulates the size of the labor force whose time is commodified. It is the political economy interpretation I am invoking today. When a person can legitimately lay claim to income without working, that is at the heart of the “working longer consensus.”

The “working longer consensus” rests on three false assumptions about longevity, public finance, and economic growth.

The truth is:

1. Increasing longevity and pension wealth are not equally distributed, and time in retirement is becoming more unequal.

2. Nations with good pensions do not spend less on the young. Nations with good pensions spend more on children, especially on education.

3. Far from benefiting both firms and workers equally, adding more elders to the labor market disproportionately benefits employers.

Let’s turn to the first myth, the false claim that increasing longevity leads to increased workability. The truth is there is a growing inequality in longevity, pension wealth and retirement time.

I trace some seeds of the “working longer consensus” to Malcolm Lovell, President Ronald Reagan’s deputy labor secretary, who warned Congress in 1982 that eroding workplace pensions and cuts in Social Security would mean the elderly would have to work longer into their lives. He advocated for aggressive anti-age discrimination laws and the elimination of mandatory retirement. The U.S. Congress passed the “Freedom to Work Act” in 2000 that penalized retirement before age 70. The United States still stands apart from the EU and OECD by banning mandatory retirement and making the age to collect full benefits at such an advanced age - age 70.  Congress gave generous terms for delaying claiming Social Security – a guaranteed 6.75 percent per year for every year past age 62.

How many people here plan to delay collecting Social Security until age 70? Hold up your hand.

Indeed, privileged older workers delay and reap Social Security’s generous rate of return. Delaying is a good investment decision! But there is no evidence that the delayed retirement credit helps anyone be better prepared for retirement, and it encourages people to work longer.

Our team’s new research by Tony Webb and Mike Papadopolous finds that older workers collect Social Security WHILE they are working. No scholar has thought to investigate that. Most established scholars assume older workers delay claiming.

We find evidence they likely do so to supplement their low pay. Most workers never get the delayed retirement credit. The delayed retirement credit goes to those who are well-off in retirement or those who are working who can wait until 70 to collect their benefit. Half of retirees retired BEFORE they wanted to, reflecting that many seniors can’t work even if they wanted a job.

Worse is the growing inequality in something even more precious - time in retirement. It is worse because of the combination of unequal longevity gains and unequal wealth.

In 1950, life expectancy at age 65 for for black and white men was equal - about 12.8 years. Now, there is a two-year difference.[3] In the last 20 years, all longevity gains for Americans have gone to those in the upper half of the income distribution. Almost all of the gains in retirement wealth have gone to the top 20 percent.

Older women[4] at the bottom end of educational attainment can expect almost 16 years of retirement time, but more than a third of that time will be spent with significant impairment.[5] Women with the highest levels of education can expect 19 years of life expectancy after age 65. These women will likely experience a fifth of those years with some impairment. Older men have a less pronounced class pattern. At age 65, men of lower socioeconomic status have about 12.6 years of retirement time with 27 percent of those years spent in impaired health. Like highly-educated women, high socioeconomic status men can expect almost two more years of life with a little less time (20 percent) experiencing impairment.

Making American workers work more is especially harsh given that American men and women work more hours per day, more days per year and more years per lifetime than any men and women in any other country in the G7. On average, American and Japanese retirement time is 20 years.  People in France get 28 years, 25 years in Italy, and 23 years in Canada.

Now, let’s turn to second myth, the myth of the greedy geezer. 

There is no evidence that “the old eat the young.” My research found that in 63 nations over 40 years, nations with high levels of education spending generosity – GDP spent per child on education -- also spend more GDP per old-person on pensions.

As nations become richer, the ability to retire becomes accepted by society. At the same time, economic prosperity causes aging populations. It might look like pension generosity is increasing because the old are getting politically stronger, but pension generosity is increasing because a nation is getting richer.

My research, controlling for aging populations, finds a 10 percent increase in education spending accompanies a 7.3 percent increase in pension generosity. Among the G-7 countries, Canada has the highest spending per child on education and has one of the highest rates of spending per elderly. The U.S. is the lowest in both.[6] But the positive correlation between education and pension spending still holds up in the U.S.

American children receive a substantial amount of Social Security income. In 2017, over 8 percent of American children lived in families that received Social Security income. Social Security income lifted one million children out of poverty, which is about a third of how many children [7] received payments from the program aimed at poor children, Temporary Aid for Needy Families. In 2018, the Social Security Survivors and Disability benefits paid $21 billion to children compared to the Earned Income Tax Credit that paid out $58 billion. Though old-age programs are not means tested, disability and early death are more common among lower income groups and so Social Security disproportionately helps low-income children.[8]

Axel Boersch-Supan examined 16 countries and also concluded social expenditures for programs targeting the elderly does not reduce the share of total social expenditures for programs targeting youth. Economists Bommier, Lee, Miller and Zuber’s 2004 study of U.S. education, Social Security, and Medicare concluded people continually get higher returns on their taxes than cohorts before them. There are detractors. Rochester’s Robert Novy-Marx and Trump-CEA member Josh Rauh argue that the underfunding of state and local government pensions will increase debt burdens for future taxpayers. But in the late 1990s, New Jersey underfunded state pensions to increase education spending. Those future taxpayers had more human capital. In 2019, Economist Charles Steindal found that pension debt had no association with state economic growth.

There is little evidence for a gerontocracy, or a Greedy Geezer effect. Education and pension spending go together because of what political scientists John Williamson and Frank Pampel call the social democratic effect. I quote them, “pensions are the outcome of a struggle between organizations and political parties representing the interests of capital and those representing the interests of labor.” Political coalitions to boost workers’ pensions are political coalitions that boost public education.  The evidence points to solidarity among generations of working class people, not strong-armed generational politics.

Now let’s turn to the third and last myth. The false claim that a larger number of older people working will add to GDP and benefit workers and firms. The truth is that employers, not labor, disproportionately benefit from tens of millions of older people needing paid work.

The sheer size of the boomer cohort coupled with their insecure pensions means over half of the 11.4 million jobs expected to be added to the U.S. economy by 2026 will be filled by workers over 55. Our project at The New School examines the impact on bargaining power. We predict power will continue to shift to employers when millions of older adults lacking basic retirement income are forced to stay or enter the labor market. Bad pensions means weaker worker bargaining power because old-age financial insecurity causes older workers’ reservation wages to drop. As a result, predictably, older workers’ wages and job quality have eroded.

Since 1991, older men’s wages started to fall relative to younger workers’ wages and have lagged behind ever since. At all education levels, older workers experienced almost no real wage growth since 2007 while weekly earnings for prime-age workers (ages 35 to 54) grew 4.7 percent. In prior business cycles, older workers’ earnings grew at similar or higher rates than prime-age workers’ earnings. Over the longer term, 1990 to 2019, for full-time men with bachelor’s degrees, the real median weekly earnings for older men decreased by almost 3 percent, while wages increased almost 9 percent for prime-age male workers with bachelor’s degrees.

And the jobs older workers have are arguably worse, not better. Older workers jobs are increasingly likely to require stooping and bending. Think warehouse and care work.  Next time you get an Amazon package from a fulfillment center, thank a granny. Writer Jessica Bruder found Amazon recruits “workampers” – elders living in trailers –to work in rural warehouses. And because of the computer, a larger number of older people have jobs demanding keen eyesight and intense concentration. Older black men are more likely to have to do physical labor than in the 1990s.

Older workers are increasingly employed in low-wage traditional jobs and in alternative work arrangements. In the next ten years, the occupations with the most job growth will be the 1.3 million personal and home health care aides. Three-fourths of these new jobs will go to women over age 55. This means older women will be taking care of even older women. Just 7 percent of personal and home health care aides are union members, and 24 percent earn less than $15 per hour.

Without secure pensions, older people are forced to accept wages, hours, and working conditions based on employer’s terms. An increase in the supply of labor invariably redistributes income away from wages and toward profits. The “working longer consensus” helps tame pressures for higher pay and improved working conditions and incentives to increase worker productivity. This is similar to what the Bank of Japan predicted.

Other sources of the “working longer consensus” come from Harvard economists Johnathon Gruber and David Wise. In 1999, they found a negative 75 percent correlation between the labor force participation of those over age 65 and the age in which people can collect their full Social Security benefits. This paper is the go-to footnote for calls to cut pensions.

But what drives what? Do nations with high unemployment expand pension benefits or do generous pension benefits drive people to retire? Gruber and Wise emphasize the supply side. They proffer that older workers decrease their work effort when they get pensions earlier. On the other hand, nations with chronically high rates of unemployment may adopt early pension ages. I find weak support for the supply side argument. If Gruber and Wise are right, pension generosity should be correlated with more time in retirement. There is virtually no relationship.  Among 42 OECD nations, the correlation between pension generosity – the amount of money spent per old person - and the average time a person spends in retirement was 12 percent in 2005 and 16 percent in 2015.

In closing (two words said by John Kenneth Galbraith that brought relief and gratitude to an audience), the “working longer consensus” should be replaced by a Gray New Deal. 

I predict we will have our chance to replace the “working longer Consensus” in the next recession and election. The policy window – when ideas, politics, and a pressing problem all come together – may be open for a Gray New Deal!

Note what happened in the last recession. The value of older workers’ retirement accounts fell. Some, instead of exiting the labor force with secure pensions, stayed on and cut spending. The recession was made worse by financialized pensions. We destabilized our automatic stabilizers. And retirement income security soared to the top of polls that asked American families about their deepest fears.

Republicans have been careful not to discuss retirement security, with the exception of a slip by Senate leader Mitch McConnell early in the Trump administration on a Sunday TV talk show  about wanting to cut entitlement spending after cutting taxes. Right now, the executive branch is cutting Social Security field office spending and getting tough on disability insurance awards. Worse, the 2017 Republican tax cuts reduced fiscal capacity to expand Social Security. But worse of all is the dead silence from the administration and the Senate majority. By not moving to bring more revenue to Social Security, only three fourths of benefits will be paid around 2034. And because the system is progressive, the cuts will increase U.S. elderly poverty rates, when we are already a leader in the number of poor elederly among rich nations. Inaction in getting new revenue into Social Security is deadly action. But in politics, regression is possible. Policies to hurt workers are politically possible.

The good news is that unlike the2016 election, when neither Clinton nor Sanders, Trump, or Cruz had any plans for retirement,[9] most all the 2020 Democratic candidates have a retirement income security plan and ALL are talking about power and unions.

The plan I know best is Buttigieg's, which expands Social Security as well as fixes our voluntary, employer system. The plan is similar to the plan I devised with EPI in 2008 and recently relaunched, called the Guaranteed Retirement Account (GRA). Guaranteed Retirement Plans are portable retirement accounts, and the money is taken out only at retirement.

Buttigieg and the GRA make employers pay 3 percent into a portable workplace plan (The GRA plan is a 1.5% shared cost between employers and employees, which is functionally the same.) The self-employed also are required to have a GRA, similar to the way they are required to contribute to Social Security.  The Gray New Deal expands Social Security and layers on top of it an advanced, funded retirement system like workers have in public employment, unionized workplaces and large firms.

Elizabeth Warren‘s plan expands Social Security. It raises all benefits $200 per month. And Bernie Sanders also expands Social Security. Joe Biden expands the employer-based pension system through a voluntary method.

Another sign the policy window for a Gray New Deal is opening is that over 34 states, like the time before Social Security passed, have employer mandates for employers to offer -- but sadly not to pay for -- a retirement plan.

A personal finance end-of-the-year article posed 12 reasons one should work past age 65. Every reason was an assertion with no proof and some falsehoods. One was that leisure might be boring. The article was every inch the “working longer consensus.” There is no evidence that having adequate income and control over pace and content of your time is detrimental. On the contrary, control over your time and adequate finances promote well-being. There is also no evidence that working longer improves financial preparedness for retirement. Jobs are low paid and people collect their Social Security while working.

The only evidence that is unassailable about working longer is that it recommodifies older people’s time, makes workers worse off, shrinks retirement time, and makes retirement time more unequal. Now may be time for a Gray New Deal.

Retirement time is the new contested struggle for paid time-off. A Gray New Deal that mandates pensions, expands Social Security, and finances long-term care will increase worker bargaining power, strengthen labor markets, and make workers better off.

 

Endnotes

1. Economist blog Bartleby September 7 – 13th 2019 (page 54)

2. (Murkami, 2019).

3. (81 percent of white men make it to 65 compared to 70 percent of black men.) 

4. in the lowest third in SES

5. (with one or more ADLs)

6. Because two-way correlations do not establish causal relations, we isolated the effect of pension generosity on education generosity by controlling for the wealth and age profiles of the nations.

7. Romig 2019

8. National Academies of Sciences, 2019

9. 68% of American workers in 2016, surveyed by the Financial Services Roundtable, said the candidates haven’t talked enough about ensuring Americans have a secure retirement (according to Forbes) and Charles Schwab survey found 77% of respondents considered the ability to save enough for retirement to be a “major public policy issue.”

This is a repost from Forbes. 
 
Image credit: Getty
 

An intriguing bronze-shawarma-Eiffel-Tower-thingy now sits atop the active West Side train yards in Manhattan. The platform has internal air-conditioning to keep the pansy and other plant roots from frying from the hot trains coming in and out of New York from Long Island. Hudson Yards also sports a snazzy theater space called The Shed and an upscale, white marble shopping mall, as well as many condos and offices, all sitting in a space that used to be fetid air. It's amazing, really. 

There are a lot of economic and morale-boosting benefits promised by Hudson Yards, which beautified a particularly avoidable part of town. However, where there are benefits, there are costs. And whether a project is worthy is known only when the benefits running on one side of the ledger are compared with the costs along the other side.

How much did New York City pay for Hudson Yards? To answer this thorny question, I asked researchers Bridget Fisher and Flávia Leite (my colleagues at The New School), co-authors of the research report, “The Cost of Hudson Yards Redevelopment Project.

Tell me about the size of Hudson Yards and how it has transformed Midtown.

In short, Hudson Yards is huge. For most of its recent history, the 360-acre area to the west of Midtown was home to commercial and light industrial uses and 28 acres of open-air rail yards owned by the MTA. In 2005, the city rezoned the area and laid the financial groundwork to transform the low-density manufacturing area into a high-density, mixed-use district. 

Today, the area is what New York Magazine calls a “billionaire’s fantasy city” and the New York Times calls a “supersized suburban-style office park.” It is home to super-tall luxury skyscrapers housing office tenants such as Coach and Wells Fargo, a mall housing retail tenants such as Neiman Marcus, Dior and Chanel, and a $475 million city-sponsored arts center. Luxury residential buildings have also grown in the area, with the average apartment costs at $4,300 per month and two-bedroom condos at 35 Hudson Yards starting at $5 million.

It has been said that Hudson Yards is “self-financing?” What is meant by that?

In 2005, Mayor Michael Bloomberg assured city residents that infrastructure needed to attract private development could be built without bearing the costs by using a version of tax increment financing, or “TIF.” Projects using revenue bonds in a TIF-type financing structure are described as “self-financing” based on the theory that designated revenues generated by a development will pay back the costs. However, Hudson Yards shows that the theory often doesn’t reflect the reality when projects are implemented. The city ended up spending an additional $2.2 billion in taxpayer dollars on the Hudson Yards project.  

So if Hudson Yards is not “self-financed,” who paid for it?

The choice to use a “self-financing” structure connected the debt issued for the infrastructure costs to the revenues generated by private development in the area. However, the plan for Hudson Yards did not allocate important risks associated with megaprojects, and taxpayers were left footing the bill if and when these materialized—which they did, at a cost of $2.2 billion. This total includes $369 million in debt costs, $400 million in cost overruns and spillovers, and a loss of $1.4 billion in revenue due to tax breaks to commercial and residential developers. 

Will Hudson Yards’ shopping, office space and condos actually add more business to the city, as stated by the city and project stakeholders?

It is still too soon to tell. However, the Bloomberg Administration’s central argument for the development of Hudson Yards was the need to build office stock to reverse New York City’s dwindling share of the region’s demand for commercial office space. But so far, we see that rather than bringing in new office businesses from outside the city, 90 percent of Hudson Yards commercial tenants have come from Midtown. More research is necessary to determine the full economic effects. 

How will we know if the $2.2 billion in costs to taxpayers are worth the benefits?

Hudson Yards will continue to develop over time. And clearly, at such a size, the project will affect the city’s bottom line. While it is sure to generate revenues for the city, in an age of increasing inequality, we must take full responsibility for how our public dollars are spent, including who benefits, who pays, and what public interest is served. The valuable lesson we can learn from Hudson Yards is to ask these important equity questions before the project is implemented, especially when all New Yorkers bear the costs.

This is a repost from Forbes. 
 
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There is no way to get to anything resembling a secure retirement system without expanding Social Security. We also need to fix the broken employer-based retirement system, but fixing pensions and expanding Social Security are not substitutes. A comprehensive retirement security bill needs both. Let’s start with Social Security. 

Social Security is a social insurance program. Workers and employers pay premiums to insure against disability and death. What's more, the system is progressive. Social Security recognizes that low-income workers need a higher replacement rate—that is, a higher share of retirement income relative to non-retirement income—than high-income people. This is because wealthier recipients use Social Security as a base for their retirement, which they supplement with assets and pensions. Social Security is not enough by itself to maintain living standards and stay above poverty

But even with their higher replacement rates, low-income retirees can hardly get by. Consider lifelong low earners, who made around $10 an hour or about $20,000 per year—say, the person who stocked shelves at the drugstore before they got a better job at Home Depot. An excellent paper from Boston College’s Center for Retirement Research shows that for these low earners, the actual Social Security replacement rate is currently about 69%. Low-income workers can barely live on their earnings while they are working. Having them live on 69% of their low incomes in retirement (about $14,000 a year) is not just difficult—it is poverty. 

Contrary to those who argue otherwise, the fact is that even low-income workers need a supplement to Social Security to stay out of de facto poverty. Yet the share of pre-retirement earnings replaced by Social Security has steadily fallen since the 1980s because of Medicare premiums increasing and benefit cuts stemming from the increasing in the full retirement age from 65 to 67. Higher income workers need about 70-80% replacement rates in retirement (they generally don’t need 100% because their tax rate and savings rates will decrease in retirement). But the average actual replacement rate for a middle-class worker is about 39%, and for the highest earners 31%.

And these replacement rates are achieved only if we do something to boost Social Security revenues just to pay for these promised benefits to achieve these replacement rates. If we fully fund Social Security, but do nothing to help workers supplement Social Security, the number of poor or near-poor people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million. In the next 12 years, 40% of middle-class older workers will be poor and near-poor elders. Even workers who don’t fall into poverty will suffer downward mobility.

Of course, the picture is much darker if we fail to raise Social Security revenues and automatic benefit reductions occur. The hypothetical is sobering to consider: your benefits are cut 25%; you move in with your adult children; your 80-year-old neighbor skips dinner. Elderly poverty is already a pressing issue; it will grow even faster if we don’t raise revenues to pay promised Social Security benefits. 

This hypothetical can be avoided, however. Rep. John Larson (D-CT) and others are sponsoring the Social Security 2100 Act. The bill solves the math problem that without more revenue Social Security benefits for the median retired household will be cut by a quarter and replacement rates will fall by one-fifth in 2034.

The Urban Institute has an excellent paper on how to make Social Security solvent. The Larson bill uses a combination of these methods and follows the basic principle in Public Finance 101—keep taxes low and expand the base. 

This is a repost from Forbes. 
 
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Every year policymakers present ideas to ensure the full funding of Social Security long into the future. One of the most commonly repeated of these proposals is to raise the age at which retirees receive their full benefits, which is currently slated to be 67 for those born after 1960. But raising the Social Security retirement age for “full” benefits leaves workers with two bad choices: working longer or living on reduced monthly benefits for the rest of their lives because raising the retirement age cuts benefits.

Advocates of the idea usually justify raising the retirement age by the fact that lifespans are rising and Social Security has to cover more years, so people should work longer. But raising the normal Social Security retirement age from 67 to, say, 68 (some even propose 76!) has little to do with working longer. The policy cuts Social Security benefits across the board.

Some of us are living longer, but not all

The under-examined and often breezy justification to raise the retirement age is that since we are living longer we should work longer. But that isn’t true for everyone. It is a well-established modern American trend that most of the longevity gains have gone to the top.

In a recent study published in the Journal of the American Medical Association, economist Raj Chetty and coauthors Michael Stepner and Sarah Abraham compiled 1.4 billion data points on individual lifespans and came to a sobering conclusion: “Between 2001 and 2014, life expectancy increased by 2.34 years for men and 2.91 years for women in the top 5% of the income distribution, but by only 0.32 years for men and 0.04 years for women in the bottom 5%.” Moreover, the authors found a nearly 15-year gap in life expectancy between the richest 1% and the poorest 1% of men (the gap was 10 years for women).

As Brookings economist Gary Burtless says regarding the “we-are-all-living-longer” justification: “This argument would be more convincing if increases in life expectancy were spread evenly across the workforce. They are not.”

Raising the Social Security retirement age targets black and low-income workers

Raising the Social Security retirement age is especially harmful to black and low-wage workershttps://blogs.forbes.com/assets/images/tweet_quote_span.png"); display: inline-block; position: relative; top: 2px; left: 2px; width: 18px; height: 15px; background-repeat: no-repeat no-repeat;">—as our new technical study finds. The reason why raising the full Social Security retirement age disproportionately impacts low-wage workers and black workers (regardless of income) is that they are unlikely to live long enough to make them whole, that is, to make up for the forgone benefits by living longer. Black and lower-middle class workers are also more likely to have physically demanding jobs, so the years they do live past claim age are likely to be spent with physical limitations.

espite small slight increases in longevity, black workers and women have not enjoyed boosts in “workability”—that is, the ability to work without causing significant deterioration of health. Between 1992 and 2014, our study found, older men and white workers enjoyed reductions (though slight) in physical job demands. This was not true for older black workers. Older women actually faced greater physical demands at work; in part, that's because old women are increasingly assisting even older women in personal and home health care.

Lifting the retirement age hurts everyone 

If you aren’t black or low-wage, don’t be lulled into thinking that increasing the Social Security full retirement age won’t adversely affect you. Increasing the official full-benefit claim age is equivalent to an across-the-board cut in Social Security benefits. Raising the FRA leaves workers with two bad choices: working longer or living on reduced monthly benefits for the rest of their lives.

The ongoing increase in the full retirement age from 65 to 67 years is equivalent to a 13% cut in benefits. Raising the full retirement age to 70 would cut another 20% of overall benefits.

Being laid off, pushed out, or deemed hard-to-hire also challenge older workers. Urban Institute economist Richard Johnson finds that more than half of older workers are involuntarily retired. As Johnson's colleagues have found, even if older workers with low incomes look for work, they may lack the skills to get the jobs. This makes hollow the advice to work longer to make up for lower Social Security benefits. The uncomfortable conclusion of labor economists is that raising the retirement age could hurt middle- and low-wage workers, as well as workers who have the bad luck to find their skills become outdated.

What to do? Instead of cutting Social Security benefits, retirement policy makers should consider raising more revenue for Social Security and modernizing the 401(k) and IRA systems to match the future of work.

Medical Monitor with different rates and curves.


I spend a bit of time each month looking at death tables. I don't really like it, but I have to—it’s my job as a pension scholar to understand which demographic traits are associated with higher mortality. Recently I came across a report from the Social Security Administration actuary’s office comparing differences in death rates among people with different incomes. Bottom line finding: Low income workers still die sooner—a lot sooner—than high income people.

As you might expect, higher incomes are associated with lower mortality rates and lower incomes are associated with higher mortality rates. More surprising, however, is the finding that social class-based longevity gaps have not really budged over the past two decades. Though we are all the same at birth, the cumulative effects of social division on the human lifespan causes low income workers to die sooner. These effects have not improved much since the longevity gap among retirees was highlighted by the Social Security Administration 12 years ago. The class gap in lifespan is not new—but its persistence is.

The report is pretty technical, and it spends a lot of time trying to figure out which Social Security beneficiaries are poor, middle class, and high income. This is more complicated than you would think. Actuaries have to make sure they don’t classify people who are in and out of Social Security as a life-long low-wage workers—for example, teachers who live in states that don't include them in Social Security, and whose official Social Security earnings are low from some non-teaching job they had as teenager.

Researchers express differences in life expectancy using “relative mortality ratios.” Males in the lowest group, with earnings of about $12,000 per year, have a relative mortality ratio of 1.30, meaning their odds of dying in the next year are 30% higher than the average male retired worker.

On the other hand, someone in the maximum earning group, with about average income over $250,000*, has a ratio of 0.70, meaning their chance of death in the next year is 30% less than average and less than half that of the lowest income group. Not only do CEOs earn more than 361 times the average worker in their firm earns, they also live longer just because they have income.

The good news (I am being wry) is that at older ages, there is less of a difference in relative mortality ratios among the income groups, because the healthiest individuals in each group live longer and the advantages associated with higher earnings diminish over time. At age 118 we are totally equal—we're all dead! And that's how long we have to wait to close the socioeconomic life expectancy gap.

Relative Mortality Ratios for Retired Men:

How much more likely a member of the group dies than the average retired man (minus 100)

Earnings group and estimated average annual pay Death rate relative to the average
Very low earner ($12,000) 130%
Low earner ($36,000) 123%
Medium earner ($68,000) 111%
High earner ($84,000)  92%
Maximum earner (about $250,00)  70%

Source: Table 13—2015 Relative Mortality Ratios by Age Group for Retired-Worker Beneficiaries Percentages; page 22 from SSA study, "Mortality by Career-Average Earnings Level" by Tiffany Bosley, Michael Morris, and Karen Glenn.

*Note: Maximum earners earn more than the Social Security cap; in 2017, the maximum wage subject to the Social Security tax was $127,200. The Social Security Administration wage statistics show that about 6% of earners earn more than $125,000, with incomes rising exponentially after that, so I pegged the average salary at about $250,000. 

2019 Q1 Status of Older Workers Report

Screen Shot 2020 01 09 at 4.26.03 PM

  • Lagging Wages: Older-worker wage growth is minimal and lags behind prime-age wage growth.
  • Loss of Bargaining Power: Older workers increasingly resort to precarious alternative work, eroding their bargaining power and impacting other older workers' wages. 
  • Policy Recommendations: Congress and the President should create an Older Workers' Bureau, Guaranteed Retirement Accounts, and expanded Social Security to protect older workers.

Download the full report here
*Arrows next to "Older Workers at a Glance" statistics reflect the change from the previous quarter's data. 
Stagnant Wages


Alternative Work Suppresses Wages

One development suppressing wage growth for older workers is the proliferation of alternative work arrangements [AWAs], including on-call work, employment in contract firms, temporary agency work, independent contracting, and gig work (classified as “electronically mediated employment”). The share of workers ages 55 to 75 who reported working in an AWA increased from 15.4% in 2005 to 24.4% in 2015. And from 2005 to 2015, 94% of net employment growth took place in alternative work arrangements (Katz and Kreuger 2016).

Both Katz and Krueger (2016) and an equivalent Bureau of Labor Statistics survey conducted in 2017 show that workers over 55 are three times more likely than workers under 35, and twice as likely as workers ages 35-54, to be in AWAs.

The common image of alternative work is of independent contractors: successful, self-employed workers who control their own work schedules and intensity levels. However, independent contractors comprise a shrinking minority of people in AWAs.

Most workers in alternative arrangements lack the ability to bargain over the terms of their employment. Gig workers often find their jobs through electronically mediated platforms which explicitly prevent bargaining over wages. On-call workers have limited control over their schedules. Moreover, a quarter of on-call workers are on zero-hours contracts, meaning they must be ready to come to work at any time but are not guaranteed any hours - and thus not guaranteed to earn a wage. In addition, the Economic Policy Institute estimates that between 10-20% of employers skirt labor protections to cut costs by misclassifying traditional employees as independent contractors.

Independent contractors, on-call, gig, temp agency and contract firm jobs all share the lack of an internal labor market. In the past, firms promoted from within and provided on-the-job training to their employees. Unions supported internal labor markets to lessen the number of entry-level jobs, ensuring that promotion ladders and training programs continued to provide workers with a path to regular raises and promotions. With the erosion of unions, internal labor markets and training programs have disintegrated. Instead of using entry-level jobs as a tool to find future prime talent, firms now hire top talent from outside, expecting workers to acquire necessary skills on their own. A growing share of low-skilled jobs are handled by contract firms and temp agencies. With no path to promotion or wage increases, labor economists call these trends the fissuring of the workplace.

While some older workers cite flexibility and autonomy as reasons for taking on alternative work, they are outnumbered 2-to-1 by those who cite financial or labor market reasons. Four in 10 older workers have no retirement savings, including one-third of workers in the top 10% of earners. Inability to retire erodes workers’ bargaining power (see ReLab's working paper, "Why American Older Workers Have Lost Bargaining Power"). Moreover, older workers face age discrimination in the labor market; older workers who are fired or laid off spend twice as long looking for work as their younger counterparts. The fissuring of the workplace permits firms to exploit older workers’ desperation through lower wage offers. Bottom line: Eroding bargaining power among some older workers can impact other older workers’ wages. Older workers’ willingness to take on precarious alternative work is a signal to employers that they do not have to raise wages.

Policy Recommendations

1. Older Workers Bureau:
The time has come to devote special attention to the increasing vulnerability of older workers. To protect older workers from exploitation, the U.S. Department of Labor should create an Older Worker’s Bureau, similar to the creation of the Women’s Bureau in 1920 to protect women in the labor market.

2. Guaranteed Retirement Accounts and Social Security Expansion:
Working longer is not an antidote to inadequate retirement savings for most workers, especially those in low-paying AWAs. While a small number – 2% – of older workers cite alternative work as a way of making ends meet until they can retire, low wages and lack of access to retirement plan coverage on the job mean older workers taking on these jobs have little ability to save.

All workers deserve to have a choice between work and retirement at older ages. Increased Social Security benefits and the creation of Guaranteed Retirement Accounts (GRAs) would allow all Americans access to a secure retirement. GRAs are a proposal for universal individual accounts funded by employer and employee contributions throughout a worker’s career and a refundable tax credit. With GRAs, workers can accumulate the savings they need to retire, rather than be forced into precarious, low-paying, alternative arrangements. Moreover, if older workers could choose retirement over bad jobs, employers would be compelled to offer better pay and offer traditional employment to those choosing to extend their careers.



Unemployment Rates

The headline unemployment rate (U-3) for workers ages 55 remained at 2.9% this quarter (from January to March), which represents no change from last quarter. ReLab’s U-7 figure includes everyone in headline unemployment, plus marginally attached and discouraged workers, involuntary part-time workers, and the involuntarily retired (those who say they want a job but have not looked in over a year). U-7 increased from 6.5% to 6.8% in the last three months. The share of jobless older workers who reported spending more than 39 weeks looking for work in the first quarter was 42%.



Low-Paying Jobs

Older workers are increasingly employed in low-wage jobs. If nothing changes, Bureau of Labor Statistics projections indicate older women will be disproportionately working low-wage personal and home health care jobs (1.3 million jobs projected to be added between 2016 and 2026). Older women are predicted to constitute 37% of these care jobs and only 14% of the entire labor force in 2026. Just 7% of personal and home health care aides are union members, and 24% earn less than $15/hour. Overall, 13% of college-educated, full-time older workers reported earnings of less than $15/hour in the last quarter, down one percentage point from the previous quarter.



Retirement Coverage

Workplace retirement plan coverage remained low in 2018 at just 44%. Growth in alternative work arrangements is partly to blame, since AWAs almost never offer retirement coverage.


 


Suggested Citation: Retirement Equity Lab. (2019). “10+ Years of No Wage Growth: The Role of Alternative Jobs and Gig Work.” Status of Older Workers Report Series. New York, NY. Schwartz Center for Economic Policy Analysis at The New School for Social Research.

This is a repost from Forbes. 
 
Voters by Ages from the Census Department

Voters by Ages from the Census Department - US CENSUS


A recent poll spells bad news for Joe Biden (76), Bernie Sanders (77), and even Donald Trump (72), and very bad news for those hoping to stamp out age bigotry. Fewer voters want someone over 75 compared to candidates with other characteristics, such as being black, or gay, or a woman, or a Muslim. Being a "socialist" is the most undesirable characteristic listed.

The NBC/WSJ poll tested 11 different presidential characteristics and their acceptability in a presidential candidate. The most popular: an African American (a combined 87 percent of all voters said they were “enthusiastic” or “comfortable” with that characteristic), a white man (86%), a woman (84%), and someone who is gay or lesbian (68% compared to 43% in 2006). The least popular: a Muslim (49%, though up from 32% in 2015), someone over the age of 75 (37%) and a socialist (25%). Those polled may be overstating their tolerance for African Americans and women; they don’t want to look bad to the pollster. But it's notable that, for many Americans, saying 75 is too old is not viewed as bigotry or an act of discriminatory prejudgment.

As I wrote in March, many Americans view prejudgment based on age legitimate. We don’t see widespread public arguments that Kamala Harris and Cory Booker are too black to run. Nor are Elizabeth Warren, Amy Klobuchar, and Kirsten Gillibrand too female to run. Every hire (and an election is a hiring decision) is a judgement about the potential productivity of a candidate. The relevant question in every hire is whether the candidate will be engaged and competent for the job at hand. Does the candidate have the knowledge and talent to do the work?

Age Discrimination is Harmful

The harm of age discrimination on the campaign trail is trivial compared to the widespread pain and damage that lies beneath the ageism. Though illegal, age discrimination in employment, pay, training, and promotion persists. Ageism makes it a struggle for older workers to get raises and jobs. A recent study illustrated widespread employer bias against older workers. A majority of employers surveyed by Transamerica Center for Retirement Studies answered that age 64 was too old to be considered for employment (this was the median age given by employers, though most refused to give an age—wisely, since it's against the law to consider age in hiring and promotion and pay). On the other hand, the median age that workers gave as being too old to work was 75. The workers’ answer still makes it complicated for the candidates over age 75.

Who is too old to be President?

I am an expert in labor economics and the economics of aging. The range of opinions from my colleagues who are professionals in the field fascinates me. Duke history professor James Chappel and English professor Sari Edelstein of University of Massachusetts, Boston, wrote last week in the Washington Post that no one is too old to be president. They argued firmly that while older people are much more healthy than in the past, they are falsely viewed as having cognitive decline that affects their capacity to do a job in the real world. Modern cognitive tests of capacity continually show that older people do not significantly differ in overall scores; some older people perform as well as, or better than, most younger people.

Chappel and Edelstein report disapprovingly on comedic poop jokes directed at Bernie Sanders, age 77; the insulting bigotry masquerading as a “joke” is that Senator Sanders is sponsored by Metamucil and was present for the signing of the American Constitution.

My colleagues are divided. One writes (and I will report their comments anonymously because they were privately made on a listserv): “At some point something is a risk and a greater risk for some demographic categories than for others. As any insurance company could tell you. So it's reasonable to worry about Biden, without making that a determining factor.”

Another wrote: “Age can also be associated with experience and wisdom and perspective.” Another wrote that so-called signs of aging could be just an ageless characteristic of someone. It is just “Biden Being Biden.”

The experts seem to be about split between those fighting back against the ageism and defending it. Here is a defense: “Suggesting that someone who would be well into his ninth decade if he served two terms is too old to run for president is not ageism.” This comment was met by a practical response: “The obvious solution, as it always is with candidates of any age, is to make sure there's a good succession in place (i.e., a proper VP pick). It certainly isn't to avoid elevating an otherwise good or preferable candidate because of what might happen in the future—'cause, well, it's the future.”

Margaret Morganroth Gullette, author of Ending Ageism, or How Not to Shoot Old People, sums up the ageism debate with common sense. Gullette argues the rigors of campaigning are a good screen for the bottom-line qualifications necessary to be president: “Weathering a presidential campaign proves the contestant has far better health and stamina than anyone of any age who hasn't done it. A presidential candidate should be judged on verbal agility, reasoning power, historical knowledge, and vision of the common good.”