Economics of Retirement

The Pandemic Retirement Surge Increased Retirement Inequality

Brief— 2021 Q1 Status Of Older Workers Report

*Arrows reflect the change from the previous quarter’s data. All data represents the most recent numbers released by the BLS. Jobs lost statistic reflects the number of additional jobs older workers would hold if the pre-pandemic older worker EPOP held for the current 55+ population.

By Owen Davis, Bridget Fisher, Teresa Ghilarducci, and Siavash Radpour

Retirement Boom: At least 1.7 million more older workers than expected retired due to the pandemic recession.
Retirement Inequality: At earlier ages, vulnerable older workers retired sooner, while more privileged workers delayed retirement. The share of retired workers among adults aged 55-64 rose 5% for those without a college education but fell 4% for those with a college degree.
Racial Inequality: Black workers without a college degree experienced the highest increase in the share who are retired before age 65. This rate rose 1.5 percentage points, from 16.4% to 17.9%, between 2019 and 2021.

Download the full report here and see the presentation here.

Since March 2020, the size of the retired population in the U.S. expanded beyond its normal trend by an additional 1.7 million people.¹ Older workers faced more health risks and disproportionate job loss during the pandemic.² Thus many older workers were pushed into unplanned retirement earlier than they would in a “normal” year.

Who retired due to the pandemic? If we group all older adults together, regardless of race or education, the increase in retirement comes predominantly from those 65 and older. The share of adults who are retired rose 1.7 percentage points for those 65 and older, compared with 0.3 percentage points for ages 55 to 64. But grouping all older adults together masks differences between educational levels and racial demographics.

Retirement Increased At All Ages For Those Without A College Degree

For older adults without a college degree, retirement increased for everyone over 55—not just those 65 and older. The retirement rate for non-college adults ages 55-64 rose 0.8 percentage points between 2019 and 2021, a 5% increase in the probability of adults in this group being retired. For non-college workers 65 and older, the retirement rate rose 1.1 percentage points between 2019 and 2021.

Although older adults without college degrees retired in greater numbers, the typical worker in this group was not financially prepared for retirement before the pandemic. Older workers without a college degree had median household retirement savings of only $9,000 in 2019, compared to $167,000 for older working households with a college degree.³ Lack of retirement savings leaves non-college workers facing a higher risk of poverty and near-poverty in retirement, particularly if they are forced into an early, involuntary retirement.

Retirement rose at all ages for workers without a college degree, despite their lack of retirement savings, because workers in this group face worse employment prospects than their college-educated counterparts. They have lower job security, and the jobs available to unemployed non-college workers are more likely to be physically demanding or low-paid.⁴ At the height of unemployment in April 2020, workers 55 to 64 without a college degree were 67% more likely to experience unemployment than college-educated older workers.⁵ High relative rates of job loss during the pandemic and poor employment prospects likely forced many older workers without college degrees into early and involuntary retirement.

College-Educated Workers Delayed Retirement at Earlier Ages, Increased Retirement At Older Ages

Retirement patterns for college-educated older adults diverged from those without a college degree. Adults ages 55 to 64 with a college degree were less likely to retire during Covid-19 compared to pre-pandemic, while those over age 65 were more likely to retire. The retirement rate for adults 55 to 64 with a college degree decreased from 16.4% to 15.8%, or a decrease of 4% in the probability of retirement—almost a mirror image of the 5% rise in the probability of retirement for non-college adults 55-64.

Compared to older workers without a college degree, college-educated workers younger than 65 have better employment prospects and faced lower rates of job loss during the pandemic. Still, they may have lost income due to reduced hours or furloughs. This makes college-educated workers 55 to 64 more likely to delay retirement to make up for lost income. Recent polling shows nearly a quarter of workers 55 and older delayed retirement due to Covid-19 or expect to do so, with postponements almost twice as high for those who lost income.⁶

For college-educated workers 65 and older, the retirement rate increased by a substantial 3.2%, a result of both involuntary retirements driven by job loss and accelerated voluntary retirement. The older the worker, the greater the risk of unplanned retirement spurred by job loss. At the height of pandemic unemployment, college-educated workers 65 and older faced a 34% greater probability of unemployment than those aged 55 to 64.⁷ The increased retirement rate for educated workers ages 65 and over also reflects workers moving up their retirement dates due to the pandemic—as highlighted in recent news media reports focusing on retirement of professionals and affluent workers.⁸

Because college-educated workers have more retirement savings than those with less education, they can cope better with unplanned retirement. Yet not all older workers with a college degree had sufficient savings prior to the pandemic, and many will likely face downward mobility in older ages due to unplanned retirement. As a recent analysis in the New York Times by Indeed.com chief economist Jed Kolko documented, retirement during Covid-19 is better explained by job loss than retirement asset values.⁹

Pandemic Retirement Increased Racial Inequality

Black older workers were more likely to be pushed into retirement than white older workers. The retirement rate rose 1.5 percentage points for Black non-college workers 55-64, compared to 1.3 percentage points for whites. The probability of a Black adult aged 55-64 without a college degree being retired increased 9.2%, compared to an increase of 7.5% for white non-college adults.

Among college-educated workers, however, the effects of the pandemic on retirement by race are more nuanced. For whites, retirement trends for earlier versus later retirements align with the analysis presented above—workers younger than 65 delayed retirement while those over 65 retired faster compared to the pre-pandemic period.

For Black college-educated workers, however, retirement rates decreased at all ages despite experiencing higher unemployment rates than their white counterparts—they delayed retirement, even over age 65. College-educated Black workers 55-64 have better job prospects than non-college Black workers, allowing them to remain in the labor force longer. But they have substantially less wealth than white workers; Black workers with a college education have median retirement savings of $50,000, less than a quarter of white college-educated households’ $206,000.¹⁰ This means Black older workers are more likely to need earnings in old age. The racial wealth gap helps explain why white college-educated workers 65 and over retired in higher numbers during the pandemic, while the retirement rate decreased for Black college-educated workers at older ages.

Policy Recommendations

Prohibit Age Discrimination

Without strict anti-discrimination laws and enforcement, older workers cannot compete for jobs. Several studies document the effectiveness of state and federal anti-discrimination laws in combating age discrimination and increasing employment of older workers.¹¹ Yet the Age Discrimination in Employment Act (ADEA) protecting older workers from age discrimination was weakened by a 2009 U.S. Supreme Court Decision. Congress must strengthen the ADEA and ensure that any discrimination motivated by age is illegal.

Extend and Increase Unemployment Benefits

Laid-off older workers experience longer spells of unemployment, contributing to why many give up looking for work and retire involuntarily.¹² Increased unemployment benefits—more than the $300 a week set to expire in September 2021—can help older workers avoid dipping into their retirement savings and claiming Social Security early.

Lower Medicare Eligibility Age to 50 & Make Medicare First Payer

Lowering the Medicare age to 50 would ensure older, laid-off workers get the care they need. Moreover, making Medicare first payer—having it cover medical expenses before private insurance—would lower firms’ costs associated with providing health insurance to older workers. Reducing the health insurance cost of hiring older workers would help prevent involuntary retirements while increasing older workers’ health coverage.¹³

Expand Social Security

Increasing Social Security and instituting a minimum benefit will soften the blow for workers who are forced to retire before they are ready and prevent many from falling into poverty. Congress should expand Social Security benefits by $200 per month for everyone and increase the Special Minimum Benefit up to 125% of poverty levels.¹⁴

Create A Federal Older Workers Bureau

An Older Workers Bureau at the U.S. Department of Labor would formulate standards and policies to promote the welfare of older workers, improve their working conditions, and advance their opportunities for profitable employment.

For a Complete List of Policy Priorities...

For a complete 10-point list of policy priorities for the new presidential administration to consider, please see our November 2020 report, “A Policy Agenda for the Biden Administration: Protecting Older Workers & Strengthening Retirement Security.”

Unemployment Rates

The headline unemployment rate (U-3) for workers ages 55 and older was 4.9% in April, up from 4.8% in March and down from a peak of 13.6% in April 2020. 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 for over a year). U-7 decreased from a high of 23.5% in April to 11.4% in March. Both U-6 and U-7 declined as some older workers working part-time during the pandemic recession went back to their full-time schedules, while others completely detached themselves from the labor market after a year of not being able to find work.

Employment-to-Population Ratio

The employment-to-population ratio (EPOP) provides a broader view of the labor market than the basic unemployment rate. At times when large numbers of unemployed workers move frequently in and out of the labor force, the EPOP shifts the focus from unemployment and participation rates to the share of the population earning an income. In April EPOP slid for both older workers (55 and older) and mid-career workers (ages 35 to 54). The older worker EPOP was down 7.2% in April from its pre-pandemic level, compared to -6.9% in March.

Labor Force Participation

The labor force participation rate indicates the share of workers who are either employed or looking for a job. In April the older worker participation recovered slightly after continually declining since August 2020. The slight uptick in older workers’ unemployment rate, as noted above, is due in part to older workers returning to the labor force but failing to find jobs (i.e., moving from out of the labor force to unemployed). The older worker participation rate was down 4.8% relative to its pre-pandemic level in April. This is more than double the decline for mid-career workers, whose participation rate was down 1.9% in April relative to the pre-pandemic level for those workers.

Technical Appendix

To determine the pre-pandemic retirement trend for Figure 1, we first calculate the retirement rate of adults 55 and over from January 2015 through April 2021, with the retirement rate defined as the share of people 55 and over who report their employment status as “retired” in the Current Population Survey (CPS). The trend is calculated using a linear regression of retirement rate on time for January 2015–February 2020. We then calculate the divergence in retirement rates as the difference between the actual retirement rate and the pre-pandemic trend for the entire sample period. We multiply this divergence in retirement rates by monthly Bureau of Labor Statistics 55+ population estimates to arrive at the divergence of age 55+ retirement levels from trend.

To explore how the pandemic changed retirement by education and race (Figures 2 and 3), we calculate the changes from 2019 to 2021 in the retirement rates of different demographic groups. Retirement rates are calculated as the share of each group listing their employment status as “retired,” according to CPS data. The retirement rate for 2019 is calculated as the full-year 2019 average. The 2021 retirement rate is the average of January–April retirement rates.

Calculations of median retirement assets by demographic categories are derived from the Survey of Consumer Finances. Our measure of retirement assets is calculated based on households’ balances in all account-type retirement plans.

Endnotes

1. If the five-year 2015-2019 trend in retirement rates for adults 55 and over had held constant through March 2021, the population of adults 55 and older who are retired would be 1.7 million lower than it is now. An adult is defined as retired if they are not working, not looking for a job, and say they are retired in the Current Population Survey (CPS). See methodology in Technical Appendix.

2. Davis, O., Fisher, B., Ghilarducci, T., and Radpour, S. (2020). “A First in Nearly 50 Years, Older Workers Face Higher Unemployment than Mid-Career Workers.” Status of Older Workers Report Series. New York, NY. Schwartz Center for Economic Policy Analysis at The New School for Social Research.

3. SCEPA’s calculations based on Survey of Consumer Finances (SCF). Older working households are defined as households with at least one worker ages 55 to 65. College educated households have at least one spouse with a college, professional, or graduate degree.

4. Davis, O., Radpour, S., and Ghilarducci, T. (2020) “Chartbook: Retirement Insecurity and Falling Bargaining Power Among Older Workers.” Schwartz Center for Economic Policy Analysis, The New School for Social Research.

5. This statistic reflects the percent difference between age groups in unemployment rates in April 2020, calculated from CPS data. Not seasonally adjusted.

6. Horowitz, J. M., Brown, A., and Minkin, R. (2021). “A Year Into the Pandemic, Long-Term Financial Impact Weighs Heavily on Many Americans.” Pew Research Center. Retrieved from https://www.pewresearch.org/social-trends/2021/03/05/a-year-into-the-pandemic-long-term-financial-impact-weighs-heavily-on-many-americans/

7. SCEPA calculations of CPS data. See note 5.

8. Tanzi, A. and Sasso, M. (2021, April 30). “Affluent Americans Rush to Retire in New ‘Life-Is-Short’ Mindset.” Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2021-04-30/more-americans-are-considering-retirement-because-of-covid

9. Kolko, Jed. (2021, May 12). “In Reversal, Retirements Increased During the Pandemic.” New York Times. Retrieved from https://www.nytimes.com/2021/05/12/upshot/retirements-increased-pandemic.html

10. SCEPA’s calculations of SCF data. Households’ race is defined based on the race reported by the respondent. See note 3.

11. Neumark, David and Joanne Song. (2013). “Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective?” Journal of Public Economics 108: 1–16. Retrieved from https://www.nber.org/papers/ w17467 13. McLaughlin, Joanne Song. (2019). “Age Discrimination Laws, Physical Challenges, and Work Accommodations for Older Adults.” Generations 43:3: 59–62. Retrieved from https://www.jstor.org/stable/26841733#metadata_info_tab_contents

12. Retirement Equity Lab. (2020). “Older Workers Know They Face An Unfriendly Labor Market.” Status of Older Workers Report Series. New York, NY. Schwartz Center for Economic Policy Analysis at The New School for Social Research.

13. Ghilarducci, T. (2020). The time is now to lower the Medicare age to 50. Forbes. Retrieved from https://www.forbes.com/sites/teresaghilarducci/2020/04/10/now-more-than-ever-is-time-to-lower-medicares-age-to-50

14. Radpour, S., Ghilarducci, T., and Webb, A. (2020). “Expanding Social Security Benefits All Workers.” Schwartz Center for Economic Policy Analysis and Department of Economics, The New School for Social Research, Policy Note Series.

Suggested Citation: Davis, O., Fisher, B., Ghilarducci, T., and Radpour, S. (2021). “The Pandemic Retirement Surge Increased Retirement Inequality.” Status of Older Workers Report Series. New York, NY. Schwartz Center for Economic Policy Analysis at The New School for Social Research.

Social Security Needs More Revenue, Not Cuts

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.

Raising The Social Security Retirement Age Hurts Everyone

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.

The Rich Have More Of Everything -- Including Lifespan

Medical Monitor with different rates and curves. GETTY

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.

10+ Years of No Wage Growth: The Role of Alternative Jobs and Gig Work

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.

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