The Impact of Population Aging and Delayed Retirement on Workforce Productivity

Gary Burtless

WP#2013-11

Abstract

As the population grows older, an increasing share of the workforce will be past age 60. Older workers have often been considered less productive than younger ones, raising the issue of whether an aging workforce will also be a less productive one. This paper uses evidence from the monthly Current Population Survey files to shed light on the issue. It documents the rapidly growing role of older workers in the labor market and the steady improvement in their relative earnings. Compared with earlier generations of aged Americans and compared with contemporary prime-age workers, today’s elderly are unusually well educated. Their high relative earnings and later retirement are partly explained by this fact. At the same time, the paper offers evidence that more productive workers stay in the workforce longer than less productive ones. Using a standard measure of worker productivity – hourly wages – workers between 60 and 74 are more productive than average workers who are younger. Compared with workers between 25 and 59, the pay premium for older workers is currently between 10 percent and 20 percent of the average wage earned by the younger workers. That pay premium has been increasing for a decade. There is little evidence the aging workforce has hurt productivity.