WASHINGTON – A new paper jointly released by The Concord Coalition and the Global Aging Institute (GAI) explains why extending work lives is an essential part of any workable strategy for addressing America’s aging challenge. The paper is the second in a quarterly series of issue briefs called The Shape of Things to Come that explores the implications of the aging of America.
“Nothing is likely to do more to maintain economic and living standard growth in an aging America than unlocking the productive potential of the elderly,” said Robert L. Bixby, executive director of The Concord Coalition. “In the midst of a pandemic and with unemployment at record highs,” he added, “now may not seem like the most opportune time to make the case. But if anything, the near-term economic and fiscal damage caused by the current crisis makes thinking about how to maintain the long-term growth in living standards all the more important.”
“Working longer is both a natural and a necessary response to the aging of America,” said Richard Jackson, president of GAI and author of the paper. “Life spans and health spans have risen dramatically over the course of the postwar era,” he said, “but far from rising, work spans have fallen. If a larger share of adults in their sixties and seventies were to remain employed, the benefits for the economy, the budget and individuals themselves would be immense.”
Key findings of the issue brief include:
- Longer work lives would boost economic growth. In coming decades, U.S. employment growth will fall to near zero as the smaller cohorts born since the end of the postwar Baby Boom climb the age ladder. Slower employment growth in turn could easily pull down real GDP growth to between 1.0 and 1.5 percent per year, just one-third to one-half of its postwar average. Longer work lives could substantially offset the demographic drag on economic growth.
- Longer work lives would improve the budget outlook. The additional tax revenue generated by the additional employment income could help to alleviate the rising burden of old-age benefit spending.
- Longer work lives would improve retirement security. All other things being equal, increasing the time during which workers save for retirement by just five years while decreasing the time spent in retirement by five years increases benefit levels by roughly 25 percent.
- Longer work lives would be good for the health of the elderly. Growing literature concludes that continued productive engagement can have a large positive effect on physical health, cognitive function and emotional well-being of the elderly.
The good news is that America has already made a start at extending work lives. After falling steeply from the 1950s through the 1970s, the elderly labor-force participation rate bottomed out in the 1980s and 1990s and has since then been rising steadily.
“As we emerge from the current crisis,” Jackson said, “we need to take constructive policy steps that build on this momentum. Encouraging longer work lives does not necessarily mean raising the Social Security retirement age. Relatively modest reforms like adjusting the Social Security benefit formula to reward workers with long careers, reducing FICA taxes at older ages, and making Medicare the primary payer for workers with employer health insurance could make an enormous difference.”
“When it comes to America’s aging challenge,” Bixby said, “it sometimes seems like all of the possible policy responses involve painful tradeoffs between higher taxes and lower benefits. While such tradeoffs are unavoidable, there is one response that could greatly mitigate the need for both—encouraging longer work lives. If we are going to address America’s aging challenge, we need an agenda with bipartisan appeal. If ever there were one, this should be it.”
The paper, “The Case for Longer Work Lives,” can be found here.
The first issue brief in the series, “America’s Demographic Future,” can be found by clicking here.
To hear and see Jackson and Bixby discuss the paper, click here for the most recent episode of Concord’s podcast, Facing the Future.