The Labor Supply of Older Americans

Alicia H. Munnell Steven A. Sass

WP#2007-12

Abstract

This paper summarizes what is known about the labor supply of older men, defined as those 55 and over. The topic is of great interest because older individuals will comprise a much greater portion of the population, so their labor supply will have a significant impact on national output, tax revenues, and the cost of means-tested programs. Most importantly, a greater proportion of older individuals will need to work than do at present, because retirement income systems are contracting and working longer is the only way for most to ensure financial security in their old age. The focus is on men, because women’s work patterns reflect the increasing participation of cohorts over time as well as the factors that affect retirement behavior.

Section I of this paper describes the changes to the retirement income system that will require people to work longer. Section II summarizes the long-term decline in labor force activity among older individuals and the factors that contributed to that trend. Section III describes the recent turnaround in the labor force activity of older people and the changes in Social Security and pensions that likely led to that reversal. In an attempt to determine whether the labor supply of older workers will continue to increase, Section IV describes changes in work patterns that have emerged in the last 20 years, leading to more mobility and less tenure among older workers and the implications of such changes on labor supply. Section V addresses the issue of health to ascertain the extent to which older people can be expected to continue in the labor force, noting that for 15 to 20 percent of the work force continued employment will be impossible. Section VI discusses the remaining incentives to retire – namely, the availability of Social Security at 62 and the lack of flexible employment arrangements. Section VII concludes.