The footprints of an aging America are everywhere. Every day it seems another blue chip report is issued worrying about the surging ranks of the elderly. All boomers will be 65 and older by 2030. (The Rolling Stones’ memorable line “What a drag it is getting old” hurts, doesn’t it?) Put somewhat differently, 19.3 percent of the population will be at least 65 in 2030, up from 13 percent in 2010, according to U.S. Census Bureau projections. The litany of fears that goes along with an aging population ranges from a rising tide of entitlement spending starving the public purse of money for productive investments, to Corporate America’s innovative energies being depleted along with graying hair and aching joints of an older workforce.
Demographics, however, aren’t destiny. Instead, an aging America is an underappreciated and unexploited economic resource in a highly competitive global economy. Take Europe vs. the U.S. In many parts of Europe there isn’t the kind of part-time, flexible work that’s available in the U.S., where federal laws have outlawed employment discrimination against age since the 1960s. Most European countries have only recently instituted such legislation. And Europe is still struggling to convince workers to stay on the job longer. The U.S. labor force participation rate of older male workers began climbing by the end of the 20th century. Older women are remaining employed longer, too. “Yes, America has an aging population,” says Nicole Maestas, economist at the Rand Corp., the Santa Monica (Calif.)-based think tank. “The upside of that is a whole generation of people who are interested in anything but retirement.”
The shift in sentiment is propitious, since the impact of working longer trumps demographic gloom. The economic dependency ratio—the number of nonworkers 16 and older compared with the number of workers 16 and older—was 50 to 100 in 1990. The Bureau of Labor Statistics predicts the ratio will leap to 62 adult nonworkers per 100 workers in 2030, with most of the increase coming after 2010. Government statisticians assume in their forecast that labor force participation rates will increase though 2020 and then level off. But if this rate doesn’t decelerate, the economic dependency ratio in 2030 would be 53, a negligible difference over 4 decades. In other words, the concern isn’t aging: It’s working.
Of course, it’s difficult to be optimistic about jobs with the unemployment rate at 8.3 percent 38 months after the National Bureau of Economic Research officially declared the Great Recession over. Nevertheless, the business cycle will eventually gather momentum. Plenty of jobs will be created from now until 2030, and the odds are good that many of the positions will be taken by older Americans. The trend toward staying in the labor force later in life took hold about two decades ago, and the transition toward retirement is increasingly complex as people forge different work paths in their older years, including downshifting to part-time work. Rand economist Maestas has found that 26 percent of retirees reversed their decision and returned to work, either full time or part time.
The “work longer” mindset reflects a number of fundamental factors that aren’t about to dissipate. Perhaps most important are the high education levels achieved by boomers, the shift toward more intellectually creative and less physically demanding work in many sectors of the economy, and the huge wave of women entering the workforce. The rewards to earning a paycheck longer rose starting in the early 1980s, when the gains of waiting to file for Social Security benefits increased from 3 percent annually to 8 percent (stopping at age 70), along with the decline of the defined benefit pension plan (in the private sector, at least). Money plays a role, too, with two bear markets and two recessions in less than a decade savaging savings. The median 401(k) and IRA balance for households approaching retirement is $120,000, roughly the same number as in 2007, according to the Federal Reserve’s recently released 2010 Survey of Consumer Finances.
An aging population may be inevitable. A decline in worker productivity with an aging labor force isn’t. That’s a lesson from an intriguing experiment by
Productivity matters more than demographics. For example, a half-century ago there were about five workers for every retiree, a figure that has shrunk to less than 3 to 1. Yet over the same time period, American living standards have risen smartly, thanks largely to productivity growth. If productivity continues to run at its current nearly 2.5 percent annual rate, the average worker will produce more than twice as much in an hour of work 30 years from now compared with today, points out Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
Taken altogether, an aging workforce is a competitive advantage. Instead of bemoaning America’s older population, policymakers and corporate chieftains should concentrate on keeping them productively on the job longer. In international comparisons, the U.S. has long garnered admiration for its productive workforce, innovative companies, superb universities, and dynamic labor market. It’s time to add older workers to that list.