Recessions and Older Workers

With the economy sliding ever deeper into recession, questions arise about how older workers are faring and how their fate relative to younger workers compares to the past. The answer to these questions turns out to be a little complicated. Two forces are at work. On the one hand, labor force participation among older workers has been rising since the early 1990s, a reversal of the long-standing trend toward ever-earlier retirement. Participation rates among older workers have even continued to rise during both of the recessions in this decade – a dramatic change from previous experience. On the other hand, the edge that older workers used to have relative to younger workers when it comes to layoffs seems to have disappeared, so the rise in the unemployment rate for older workers in recessions now looks similar to that for younger workers. Of the two forces, the trend growth in labor force participation appears to dominate, which has helped keep the employment rate of older workers from falling during the current recession. This pattern contrasts sharply with the far more typical decline in employment rates for workers under age 55. This brief is organized as follows. The first section discusses the upward trend in the labor force participation of older men. The second section explores why older men may have lost some of their edge with regard to job security. The third section looks at how these two developments – the secular upward trend in labor force participation and the heightened vulnerability to layoffs relative to younger workers – have affected the employment rates of older men in this recession compared to earlier ones. The fourth section concludes.

Why Are Older Workers At Greater Risk of Displacement?

The conventional wisdom says that older workers are less likely to be displaced than younger workers. While true in the past, the conventional wisdom is no longer true today; the advantage that older workers had has disappeared. This loss of relative job security is troubling. Once displaced, older workers are less likely to be reemployed, have less time to adjust their retirement plans, and are more likely to retire prematurely. Given the contraction of the nation’s retirement income system and rising longevity, these adverse effects make displacement increasingly injurious to older workers. This brief analyzes changes in the displacement of older and prime-age workers since the mid-1990s and the effect of three factors – tenure, educational attainment, and employment in manufacturing – identified as having a significant effect on displacement risk. The results show that all three factors contributed to the rising dislocation risk older workers face and their rising risk vis-à-vis prime-age workers. The brief proceeds as follows. The first section presents the three factors identified in the literature as affecting displacement. The second section reviews the data and methodology used to analyze the effects of these factors on the changing displacement risk of older and prime-age workers. The third section reports the findings, and the fourth section concludes.

Do State Economics or Individual Characteristics Determine Whether Older Men Work?

The difference in labor force participation rates of men aged 55-64 across the United States is astounding. For example, West Virginia has a participation rate below 60 percent, while South Dakota has a participation rate approaching 90 percent (see Figure 1). This fact in itself has significant implications for the pressures that states will face as the baby boom starts to retire in the face of a contracting retirement income system, declining housing prices, and a lackluster stock market. Despite these marked differences, little is known about the reasons for such variations in work patterns. An earlier brief, using the Current Population Survey for the period 1977-2007, demonstrated that the differences in the labor force participation of older men were related to labor market conditions, the nature of employment, and the employee characteristics in each state as well as to a “pseudo replacement rate.” These variables explained more than one-third of the total variation...