Has the Displacement of Older Workers Increased?

Alicia H. Munnell, Steven Sass, Mauricio Soto, and Natalia ZhivanCenter for Retirement Research at Boston College

“Pathways to a Secure Retirement”National Press Club, Washington DC

August 11, 2006

The decline in the retirement age needs to reverse…

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1962-2005. Current Population Survey.

Average Retirement Age for Men, 1961-2004

1

60

61

62

63

64

65

66

67

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001

Age

…because Social Security replacement rates are declining…

2

Estimated Social Security Replacement Rates for the Medium Earner, 2002 and 2030

Source: Authors’ calculations based on Alicia H. Munnell. 2003. “The Declining Role of Social Security.” Just the Facts on Retirement Issues. Center for Retirement Research at Boston College.

41%

36%33%

39%

30%

0%

10%

20%

30%

40%

50%

Reported replacement rate (2030 incorporates extension of Normal Retirement Age)After Medicare Part B deductionAfter personal income taxation

20302002

…and the shift to 401(k) plans has produced small balances.

Workers with Pension Coverage, by Pension Type, Survey of Consumer Finances 1983,

1992, and 2004

3

Source: Alicia H. Munnell and Annika Sundén. 2006. “401(k) Plans Are Still Coming Up Short.” Issue Brief No. 44. Chestnut Hill, MA: Center for Retirement Research at Boston College.

62%

26%

12%

44%40%

16%

63%

20% 17%

0%

10%

20%

30%

40%

50%

60%

70%

Defined benefit only Defined contribution - 401(k) -only

Both

1983

1992

2004

But bad things happen to people in their fifties, making continued work difficult.

Source: Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello. “How Secure Are Retirement Nest Eggs?” Issue Brief No. 45. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Incidence of Selected Personal Shocks, HRS 1992 - 2002

4

7%

19%

7%

41%

0%5%

10%15%20%25%30%35%40%45%

Major MedicalCondition

Severe Disability Widowed Laid off

Inci

denc

e

Question: Have displacement rates increased for older workers?

Older Displaced Workers as a Percent of Total Displaced Workers, 1984, 1994, and 2004

5

6% 5%

4%

8%

5%

4%

10%

8%

5%

0%

2%

4%

6%

8%

10%

12%

50-54 55-59 60-64

Age

1984

1994

2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

Many factors can affect displacement rates of older workers:

•Greater educational attainment

•Shift from goods to services

•Shift from defined benefit to defined contribution plans

•Aging of baby boom

•Changing tenure

Source: Alicia H. Munnell, Steven Sass, Mauricio Soto, and Natasha Zhivan. 2006. “Has the Displacement of Older Workers Increased?” Paper prepared for the 8th Annual Joint Conference of the Retirement Research Consortium, Washington, DC. August 10-11, 2006.

6

Data suggest tenure of older workers has declined.

7

Percent of Men and Women Age 55-64 with More than 10,15, and 20 Years of Tenure, 1983 & 2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2005. Current Population Survey.

62%

47%

35%

54%

40%

29%

0%

10%

20%

30%

40%

50%

60%

70%

Tenure: 10 or moreyears

Tenure: 15 or moreyears

Tenure: 20 or moreyears

1983

2004

The Displaced Workers Survey (DWS) provides 20 years of displacement data.

Percentage of Workers Displaced by Reason for Displacement, 1984-2004

8

*Note: Adjusted as suggested in Farber (2003).Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

0%

2%

4%

6%

8%

10%

12%

14%

16%

1984 1988 1992 1996 2000 2004

Other

Self-operatedbusiness failedSeasonal jobcompletedPosition/shiftabolishedInsufficientworkCompanyclosed/moved

*

Raw DWS data suggest that older worker displacement rates remain below those for younger workers.

Displacement Rates, by Age, 1984-2004

9

0%

2%

4%

6%

8%

10%

12%

14%

Year

Ages 20-49

Ages 50-64

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

Regression results also show older workers with lower probability of displacement.

10

Probability of Displacement for Workers Age 50-64 Compared to Workers Age 20-49, 1984-2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

-10%

-8%

-6%

-4%

-2%

0%

2%1984 1988 1992 1996 2000 2004

However, further DWS analysis indicates that job tenure – not age – drives the results.

11

-15% -10% -5% 0% 5% 10% 15%

Probability of Displacement for Older Workers by Tenure and Age, 2004

Tenure: 10 or more years

Tenure: 5-9 years

Tenure: 1-4 years

Age: 60-64

Age: 55-59

Age: 50-54

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 2004. Current Population Survey and Displaced Workers Survey.

The declining impact of education in DWS is also interesting.

12

Impact of College on Probability of Displacement, 1984-2004

-5%

-4%

-3%

-2%

-1%

0%

1%1984 1988 1992 1996 2000 2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

Not statistically

significant

Statistically significant

Using the HRS also shows that tenure matters, not age.

13

Probability of Displacement for Older Workers by Tenure and Age, HRS 1994-2004

-15% -10% -5% 0% 5% 10% 15%

Source: Authors’ calculations of the University of Michigan. 1994-2004. Health and Retirement Study.

Tenure: 10 or more yearsTenure: 5-9 years

Tenure: 1-4 years

Age: 60-64

Age: 55-59

Age: 50-54

Not statistically

significant

Statistically significant

HRS also reveals that pensions have a modest negative effect on displacement.

14

Probability of Displacement by Type of Pension Plan, HRS 1994-2004

Source: Authors’ calculations of the University of Michigan. 1994-2004. Health and Retirement Study.

Both

Defined contribution

Defined benefit

-15% -10% -5% 0% 5% 10% 15%

Percent

Not statistically

significant

Statistically significant

HRS also shows displacement has permanent effects on work.

15

Probability of Working, HRS 1994-2004

Source: Authors’ calculations of the University of Michigan. 1994-2004. Health and Retirement Study.

Years since laid off

Years since displacement

Business closing

-15% -10% -5% 0% 5% 10% 15%

Percent

-21%

Laid off

DWS also shows that finding a new job is more difficult for older workers.

16

Probability of Re-employment for Displaced Workers Age 50-64 Compared to Workers Age 20-49, 1984-2004

-25%

-20%

-15%

-10%

-5%

0%

5%1984 1988 1992 1996 2000 2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

However, DWS suggests that age is not a significant factor in size of wage loss.

17

Percentage Change in Real Weekly Earnings for Reemployed Workers Age 50-64 Compared to Workers Age 20-49, 1984-

2004

-25%

-20%

-15%

-10%

-5%

0%

5%1984 1988 1992 1996 2000 2004

Source: Authors’ calculations of the U.S. Bureau of Labor Statistics. 1984-2004. Current Population Survey and Displaced Workers Survey.

Not statistically

significant

Statistically significant

Conclusion

18

•Workers need to work longer.

•Job displacement of older workers has lasting effects.

•Displacement has not increased in two decades.

•But job tenure, not age, drives displacement trends.

•And declining job tenure suggests older workers could be imore vulnerable in the future.