Self-Employment Is No Solution for the Older Unemployed 
Tweet: Self-Employment Is No Solution to the Shortage of Good Jobs for Older Workers #JobsReport @tghilarducci http://bit.ly/1WdPDaY

smaller share of older workers are officially looking for work. The unemployment rate for workers aged 55 to 64 was 3.6% in April, down 0.3 percentage points from March. Older men’s unemployment decreased from 4.0% to 3.8%, and older women’s unemployment decreased from 3.8% to 3.6%.

Older workers have lower official unemployment rates than the national average, but face stagnating wagesgrowing long-term unemploymentphysically demanding jobs, and age discrimination. One widely-advocated solution is for the unemployed to create their own jobs by becoming self-employed.

Near Retirees Average Household-Level Financial Assests

But this is wishful thinking. The existing self-employed are workers who have, to a greater or lesser extent, chosen self-employment rather than entered it as a last resort. It does not follow that if the older unemployed attempt to become self-employed, they will succeed. Analysis of Health and Retirement Study (HRS) data, a nationally representative survey of older Americans shows:

  1. Few unemployed workers over 55 enter self-employment – only 5.7% during the period 2010-2012.
  2. The low rate of entry to self-employment likely reflects a lack of resources, rather than insufficient entrepreneurial zeal among older unemployed workers.

Median household-level financial assets of unemployed workers over 55 are only $2,000. In contrast, newly self-employed older workers have average financial assets of $25,000, and older employees $10,000. Unemployed workers are also less likely to have housing wealth to draw on. Only 71% of older unemployed workers are homeowners, compared with 87% of the newly self-employed and 83% of employees, and unemployed homeowners have less housing equity than the newly self-employed and employees. With only $2,000 to start a business and little collateral, the older unemployed are unlikely to be able to finance viable businesses. Instead, self-employment likely means taking insecure, low-paid work in the gig economy.

America’s older workers should be able to choose to leave the labor force after a lifetime of work. Policy proposals that call for cutting Social Security benefits by raising the retirement age leave people at the mercy of a labor market unfriendly to older workers. Guaranteed Retirement Accounts (GRAs) open a path to retirement security by providing all workers retirement savings plans with guaranteed growth.

Slower Recovery for Older Workers Tweet: Today's #JobsReport for workers over 55: slower recovery for older workers.  http://ctt.ec/XByk8+ @tghilarducci

The reported unemployment rate for older workers often looks better than that for younger workers. Today’s March employment report shows an unemployment rate for workers aged 55 to 64 of 3.9%, an increase of 0.1 percentage points from the February rate of 3.8%. While older men’s unemployment stayed the same at 4.0%, older women’s unemployment increased from 3.5% to 3.8%.

However, older workers don’t always have an easy time finding jobs. Since the economic recovery starting in 2009, the labor market for older workers has recovered less robustly than for younger workers.

The headline unemployment rate (referred to as U-3) understates the true level of unemployment by only including those actively looking for work in the past four weeks. A broader measure of unemployment - called U-6 - includes both part-time workers who would prefer a full-time job and workers who would look for work if they thought they could get a job (including discouraged workers who have recently given up looking for work). Economists consider U-6 a good measure of slack, or excess supply, in labor markets.

March 2016 Unemployment Report: Slower Recovery for Older WorkersMarch 2016 Unemployment Report: Slower Recovery for Older WorkersThe more inclusive U-6 unemployment rate for workers aged 55 to 64 shows a weaker recovery after the Great Recession. The February 2016 rate of 6.5% (the most recent data available) remains 48% higher than its pre-crisis low of 4.4%, reached in December 2006. In contrast, U-6 for all workers is only 21% higher than its pre-crisis low reached in March 2007.

Two important factors contribute to older workers facing particular difficulties in a recovering labor market. First, older workers are less likely to switch industries relative to prime-age workers. Second, older workers experience longer average spells of unemployment than prime-age workers.

Advocates for cutting Social Security benefits by increasing the retirement age point to headline unemployment rates, which have nearly returned to pre-crisis levels, as evidence that older workers can delay retirement. But the U-6 unemployment rate for older workers suggests otherwise - that delaying retirement is not a one-size-fits all solution for those nearing retirement age without enough retirement savings.

Rather than forcing older workers to fend for themselves in an unfriendly labor market, we need Guaranteed Retirement Accounts (GRAs) to allow workers a safe, effective vehicle to accumulate savings over their working lives so that those with limited labor market options can retire in dignity.

A Comprehensive Plan to Confront the Retirement Savings Crisis” is a proposal for a new approach to national retirement savings by SCEPA Director Teresa Ghilarducci and Blackstone President Tony James.

The plan proposes a simple, immediately effective solution to address the fundamental flaws in today’s broken retirement system. If we stay on our current path, America will face rates of poverty among senior citizens not seen since the Great Depression. The strain of this population will have resounding effects across the economy, the government and future generations.downward mobility

downward mobilityIn response to this challenge, Ghilarducci and James have researched and developed a national plan that ensures every worker a more secure retirement. The plan details a single, sustainable framework that allows Americans to save consistently, generate the returns necessary and retire with guaranteed lifelong income. And by repurposing lopsided subsidies and strategically using existing government infrastructure, this plan can be implemented with no new taxes, bureaucracy or increase of the federal deficit.

This plan was developed by an unlikely partnership between Ghilarducci and James. Together, they’ve developed a simple, actionable solution to this impeding crisis.

Learn more:

Anyone on track to make a million dollars got a lot more than chocolates and roses for Valentine’s Day this year. On February 14th - less than a month and a half into the year - they paid their last dime of Social Security taxes for 2016.

That’s the conclusion of a tool created by Kevin Cashman at the Center for Economic and Policy Research (CEPR). It’s based on the little known fact that Americans only pay Social Security taxes on their first $118,500 of income. For most of us, this doesn’t make much difference. But for the 6% of wage earners who earn above the cap, it can be huge. For the solvency of Social Security, it’s more important than ever.

I’ve written about this before. As Cashman’s calculator shows, those who make slightly above the cap don’t benefit much from it. But the nature of inequality in America today means that a lot of people make a lot more, and for them the savings add up quick.

Take, for instance, the top 565 wage earners, who make an average of $28 million per year. They finished paying into Social Security by the end of their first day at work. The top 110 wage earners were done within their first two hours.

As Cashman’s calculator makes clear, someone who earns $50 million per year pays a little more than twice what someone earning the median household income of $50,000 pays, despite having an income 100,000% greater. This has implications for the system’s solvency. If the cap on Social Security taxes adjusted to the reality of income inequality, the richest Americans wouldn’t notice the difference. But for the millions of Americans who rely on it, Social Security will be fully funded for generations to come.

Lifting the cap isn’t completely outside the realm of political possibility. The medicare tax had an income cap until 1994, when a bipartisan group of lawmakers came together to guarantee its solvency with a tax of 2.45% on every dollar earned. This might seem unlikely in our era of political paralysis, but large majorities of all age groups consistently oppose cutting Social Security. I’m optimistic that such a compromise can happen again.

Wages Stagnate as More Older Workers Join the Labor Market Tweet: Wages Stagnate as More Older Workers Join the Labor Market #JobsReport @tghilarducci http://ctt.ec/bV2w2+ 

The unemployment rate for workers aged 55 and older increased last month for the second month in a row, from 3.7% in January to 3.8% in February. The overall unemployment rate stayed constant at 4.9%.

More older workers are joining the labor market. From 2005 to 2015, the labor force participation rate for men aged 55 to 64 increased from 69.3% to 69.8%. The labor force participation rate of older women increased somewhat more - from 57.0% to 58.5%.

An increasing labor force participation rate for older workers represents an increase in the supply of labor. Whereas an increase in the demand for labor will increase job opportunities and wages, an increase in supply may be associated with reduced both wages and job quality.

The increase in the labor force participation rate from 2005 to 2015 was associated with a slowing in the rate of growth in wages of older workers, indicative of weak demand for labor. Between 1995 to 2005, real weekly earnings for men and women aged 55 to 64 increased by 7.1% and 23.7%, respectively. But between 2005 to 2015, real weekly earnings increased only 2.5% for men and 1.1% for women. This sluggish rate of growth of weekly wages wasn’t the result of a decline in the number of hours worked. The median hours worked among full-time older workers stayed constant at 40 hours per week between 1995 and 2015.

Without well-designed retirement plans, saving for retirement becomes difficult and delaying retirement becomes necessary. This could be why the Bureau of Labor Statistics predicts older workers’ labor force participation rate will continue to grow in the coming decade, especially for women, who have a projected participation rate of 62.9% by 2024. If older workers are unable to retire, it has a ripple effect on the entire labor market, as increasing competition from older workers decreases the bargaining power of younger workers.

We need to ensure older workers a viable path to retirement by creating reliable retirement savings programs to supplement Social Security. For example, Guaranteed Retirement Accounts (GRAs) require employee and employer contributions over a worker’s lifetime and provide guaranteed lifetime income in retirement. With the confidence provided by secure retirement income, older workers can choose to leave the labor market according their own needs, rather than hanging on to undesirable jobs out of financial desperation.

Notes: Data for median weekly earnings in current dollars for men and women age 55 to 64 as well as historical and projected labor force participation rates are taken from the Bureau of Labor Statistics. Inflation adjustments are made using the Consumer Price Index. Median usual hours worked per week figures for workers aged 55 to 64 are calculated by the author from CPS Annual Social and Economic Supplement.

 

I spoke with The New York Times’s Noam Scheiber about the retirement savings initiatives in President Obama’s 2017 budget proposal. They are an admirable attempt to make up for the long decline in employer-provided retirement benefits, but don’t go far enough.

American workers are facing a retirement crisis. Experts recommend we have at least eight times our salary in savings by the time we retire. But the median account balance among families on the verge of retirement is only $12,000. Few have even close to enough savings. Many have none at all.

President Obama’s 2017 budget proposal includes a few modest attempts at improving working Americans’ ability to save for retirement. One is the “auto-IRA,” which would that require all companies who don’t offer a retirement plan enroll their workers in an IRA. Another is a proposal to make it easier for small businesses to join together and offer their employees pooled 401(k) plans at a lower cost than if they purchased them on their own.

These are notable attempts at reform, but will not solve the retirement crisis even if they make it through Congress. My proposal calls for Guaranteed Retirement Accounts, managed by the Social Security Administration, to which employers and employees would split a mandated 3% of their income and which would generate a guaranteed rate of return. This is the best way to ensure all Americans can enjoy a comfortable and secure retirement.

Long-Term Unemployment Rate Increased Faster Among Older Jobless Women than Older Jobless Men

The average unemployment rate is down. But it is up for older workers. Today’s jobs report from the Department of Labor reports an unemployment rate of 3.7% for workers over 55 in January, up from 3.2% last month, an increase of 0.5 percentage points. The overall unemployment rate went down by 0.1 percentage points from 5.0% to 4.9%.

Last month, we reported that unemployed older workers took longer to find a new job than younger workers. Drilling down to the different experiences of men and women, we find that that the long-term unemployment rate - defined as being unemployed more than 27 weeks - increased faster for older women.

TableIn 2007, before the recession, a larger share of jobless men ages 55 to 64 (26%) were long-term unemployed than jobless women of the same age (21%). By 2015, well into the recovery, 37% of unemployed men and 35% of unemployed women were long-term unemployed. The share of unemployed women who are long-term unemployed increased 14 percentage points compared to an increase of 11 percentage points for men. For comparison, in 2015, 22% of unemployed 20- to 24-year-olds were unemployed long term.

Other studies confirm that older women face a harsh labor market. The National Bureau of Economic Research (NBER) found that older, college-educated women face more discrimination finding work than both younger women and older men. The Federal Reserve Bank of St. Louis also found that after the Great Recession, older job seekers, especially women, were hit hardest and longest by both unemployment.

It’s no surprise that long-term unemployment decreases bargaining power by increasing a worker’s willingness to accept a less desirable job. Older women nearing retirement already experienced a lifetime of wage disparity that makes it harder to adequately save for retirement during their working years. For women ages 50-64 without enough retirement income, cutting Social Security by raising the retirement age makes the situation worse. They will be forced to work or look for work longer in a labor market characterized by both age and sex discrimination.

Rather, we need to provide Americans with an adequate, secure income in old age. This will level the labor market playing field, allowing all older Americans to choose between retiring with dignity and taking the time to look for decent jobs that best match their skills. Guaranteed Retirement Accounts (GRAs)are one means of achieving this goal.

NOTES: The share of unemployed workers who are long-term unemployed by sex and age is calculated by dividing the number of women and men that are unemployed for 27 weeks or longer by the number of all unemployed workers. The Bureau of Labor Statistics provide the data for the denominator and numerator. The denominator is the number of unemployed men and women aged 55-64 and the numerator is the numbers of long-term unemployed men and women aged 55-64.