Policies to Promote Labor Force Participation of Older People

Alicia H. Munnell

WP#2006-2

Abstract

That older people will need to work longer in order to ensure a secure retirement is undeniable. Social Security, the backbone of the retirement system, will not replace as much pre-retirement income in the future as it does today. Employer-sponsored pensions also involve considerably more uncertainty given the shift from defined benefit to 401(k) plans. With institutional saving arrangements on the decline, one might have thought that people would be saving more on their own. But personal saving outside of pension plans is virtually non-existent. Combine the retirement income crunch with the dramatic increase in life expectancy, and continued employment in later life appears like a promising option for ensuring the financial security of older Americans. The hard questions are whether older people will offer their services and whether employers will retain or hire them. This paper explores the potential supply of and demand for older workers and looks at some proposals to help increase the labor force participation of this group.