Jan 6 (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.
The author is a Reuters columnist. The opinions expressed are his own.