Are older workers getting in the way of the young?

Fri Jan 6, 2012 2:02pm EST

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(Reuters) - Today's report on unemployment shows that the economy continues to gather steam - payrolls grew by 200,000 and the jobless rate ticked downward again, to 8.5 percent.

But young Americans are having a much tougher time finding work than older workers. The seasonally-adjusted jobless rate for workers over age 55 stood at 6.2 percent last month, compared with 9.4 percent for workers age 25 to 34.

And the overall workforce is getting more gray. Labor force participation by workers over age 55 has risen 11 percent since December 2007, and is projected to go higher as baby boomers try to restore retirement security by staying on the job longer. For example, 15 percent of Americans tell the Employee Benefit Research Institute they expect to work until age 70, up from 11 percent as recently as 2006.

All of which begs the question: In an economy where 20 million Americans are still out of work or underemployed, are older workers hurting the young by refusing to get out of the way? News stories on unemployment often say that they are - and intuition might tell you that's so.

But any mainstream economist will tell you that's just not how labor markets work.

"Many people who aren't economists think there is only a finite amount of work to do," says Jeffrey Zax, a professor at the University of Colorado who specializes in labor economics. "No one within the field of economics believes that, but it's a perpetual myth that we've never succeeded in killing as we would like to."

"Work comes from the ability to do something useful, and there is no fixed limit on how many useful things can be done," he adds. "History shows we are always thinking of new things to do that are useful. So what determines how much work is possible is how much useful work there is to do."

Economists call this the lump sum of labor fallacy. It stems from understandable gut-level fears and insecurities we all feel. And it's no different than fears sparked by the growth of other demographic groups in the labor force over time, such as women or immigrants.

"People have a very static view of the economy," Zax says. "They think 'my job is my job, and if someone takes my job what will I do?' But in reality, there is enormous volatility and churn in the economy. Businesses and jobs come and go. None of us want to experience that personally because of the uncertainty, but the economy is always creating new opportunities."

There's no evidence that older and younger workers compete directly for the same positions, Zax says. "Younger workers come into the labor force with a different vintage of education, and they don't have work experience. So, you don't often find old and young workers clamoring for the same low-wage McDonald's job."

In fact, Zax argues the different age groups often play complementary roles. "A senior worker with experience might allow a company to hire more junior employees because you have someone who can manage them," he says. Likewise, older job-creating entrepreneurs represent a rising share of start-up activity, according to the Kauffman Index of Entrepreneurial Activity; in fact, entrepreneurs age 55 to 64 accounted for 23 percent of start-up activity in 2010.

Jobless rates historically have been higher for younger workers - even during times of economic expansion. BLS reported today that 23.1 percent of teens age 16 to 19 seeking work were jobless last month; for workers age 20 to 24, the figure was 14.4 percent. The Occupy Wall Street movement underscores the urgency of the jobless problem among the young, but this reflects our broader economic challenges, not a refusal of older workers to retire.

The incentives for older people to continue working are powerful and positive at a time when the nation's retirement safety net is badly frayed.

Working at least until the Social Security Normal Retirement Age (NRA) of 66 allows seniors to avoid 8 percent annual early-filing benefit reductions - and they can add 8 percent to annual benefits for every year they delay filing up to age 70.

What's more, Social Security imposes no benefits penalty for seniors who continue to work after reaching the NRA. Partial benefits are withheld for seniors who file for benefits before the NRA and earn more than a $14,640 per year. In those cases, $1 will be deducted from your benefit payments for every $2 earned over that amount; the withheld benefits are added back into benefits after the NRA is reached.

Additional years on the job also allow workers to make additional contributions to retirement accounts, building balances that can be put to work in the market; and every additional year of income is a year in which workers aren't drawing down retirement balances to support themselves.

So, it's time to get used to the idea of a graying workforce. It's not going away anytime soon - and we shouldn't wish that it would.

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The author is a Reuters columnist. The opinions expressed are his own.

(Editing by Lauren Young and Beth Pinsker Gladstone)

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Comments (4)
moneywon wrote:
Perhaps we can solve unemployment by paying extravagant salaries for “thinking up useful things for people to do,” as opposed to “explaining” how a work force that is growing due to ending pensions, extended SS ages, debt, military shrinkage, declining further education rates and soaring costs of education and health is somehow, “Playing complementary roles.”

And I think we all know why there were so many startups of people age 55-64 in 2010. They all got fired and evicted and there was no jobs at McDonalds.

Jan 07, 2012 8:30am EST  --  Report as abuse
txgadfly wrote:
Of course older workers are getting in the way of the young! They are desperate.

The US Government, especially those in the Republican Party, have been systematically demolishing whatever retirement security older Americans ever had. After decades of high taxes for “social insurance” now all the talk is of cutting Social Security, Medicare, Medicaid and Food Stamps, which are the core programs that created “retirement” in America. Any older American who is not frightened to death is an idiot. This after most workers in the USA paid more in “premiums” (but they were really just taxes) than in Income Tax for decades. What we got was lies and wars and Israel.

At the same time, the Government allowed corporations and other employers to drop defined benefit pensions. Very, very few people under 60 are covered by one. At the same time, policy was for a strong dollar, job exports, falling wages in the USA and, it turns out, a lingering depression that the press and the Government lie about being a “recovery” (what a joke!). The result has been a reliance on 401k plans and IRAs that have lost money for 12 years now, even as people desperately cling to them.

No job security, no retirement security, cuts in every program to benefit citizens and hikes in taxes and prices — why would you think to see anything but the clinging behavior rampant in the USA? What fool of a young person would be optimistic about their future? We have a failed State here and leadership that wants to Party like it is 1984. Everyone’s future looks bleak.

Jan 07, 2012 9:36am EST  --  Report as abuse
M.C.McBride wrote:
People and governments with money to hire need to hire. Whatever your political leanings, this generation of young people is the most educated and the most comfortable with technology in the history of the world. They are not going to be impressed with a system that does not benefit them and will seek radical change.

Jan 07, 2012 11:23am EST  --  Report as abuse
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