CHAPTER 1

Who Is Delaying Retirement? Analyzing theIncrease in Employment among Older Workers

GARY BURTLESS

Americans past age 60 are delaying their withdrawal from the workforce.This development reverses a trend toward early retirement that lastedlonger than a century. The trend toward earlier labor force exit came to an end forU.S. men between the mid-1980s and mid-1990s. After reaching a low point inthe 1985–95 decade, the labor force participation rate of 60–64-year-old men hasincreased more than 6 percentage points (about one-eighth), and the participationrate among 65–69-year-old men has increased about 13 percentage points(more than half ). Participation rates among American women in the same agegroups have increased even faster, especially when the change is measured in proportionalterms.

One explanation for this reversal is the change in incentives for work in laterlife, a result of reforms in the U.S. Social Security system, the gradual evolutionof the nation's employer-based pension system, and the increasing expense ofhealth insurance outside employer-provided group plans. Compared with the1970s and early 1980s, Social Security retirement benefits now provide fewer andsmaller disincentives to work after workers reach the benefit-claiming age.Employer-sponsored retirement plans are now more likely to offer defined-contributionpensions rather than defined-benefit pensions. The latter type ofplan can create powerful incentives for workers to leave career jobs after they haveattained the earliest benefit-claiming age. In contrast, defined-contribution plansprovide stronger incentives for older workers to keep working. Finally, the eliminationof many employer-funded retiree health plans combined with steepincreases in the cost of health insurance has made it riskier for workers too youngfor Medicare to leave jobs that provide a health plan.

The goal of this chapter is to identify the groups in successive birth cohortsthat have delayed their retirement in the era since the retirement age began to rise.It aims to answer a handful of questions about the trend toward later job exit inthe past quarter century: How big is the delay in retirement compared with jobexit patterns observed in the late 1980s? Do groups delaying retirement earnabove-average wages? Do the workers retiring at later ages have more schoolingthan average, or do they have below-average educational credentials? Does laterretirement primarily take the form of part-time work, or have aged workers alsoseen an increase in full-time employment? Have older workers delayed theirdeparture from their career jobs? Or have they taken "bridge jobs" that have lessresponsibility, fewer hours, or worse pay than their previous jobs?

The analysis was performed using Current Population Survey (CPS), whichprovides detailed monthly data on the labor force status of adults in approximately60,000 households every month. The available monthly files cover 1977to the present. During the first decade of the period, the average retirement agedeclined; during the most recent two and a half decades, the average age at retirementhas increased. Each section of this chapter addresses one of the questionsmentioned earlier. The chapter concludes with a summary of findings.

How Much Has Workforce Participation Increased at Older Ages?

At the beginning of the twentieth century, retirement was uncommon but notunknown. Just one out of three men past age 65 was outside the paid workforce.By 1950 retirement was more common. Only about 46 percent of men 65 andolder held a job or were actively seeking work. The labor force participation rateof aged men continued to decline and reached a low point in 1991, when lessthan 16 percent of men over 65 were employed or actively seeking a job. The proportionof women over 65 who were employed also fell during much of the twentiethcentury, but the reduction was far smaller than among men because the percentageof older women in paid work had always been modest.

Changes in Age-Specific Participation Rates

The decline followed by the increase in participation rates among aged Americansin the post–World War II era can be clearly seen in the Bureau of Labor Statistics(BLS) estimates of labor force behavior over the past six decades (seeappendix table A-1). The statistics for people 65 and older can be somewhatmisleading, however, because the ages they cover include both 65–74-year-olds,who tend to have higher workforce participation rates, and people who are pastage 75, nearly all of whom have left the workforce. The percentage of the olderpopulation in the labor force is affected by both age-specific participation ratesand the age profile of elderly Americans. As survival rates have improved, thenumber of people living past 75 has increased. Conversely, the entry of the largebaby boom generation into its retirement years is temporarily increasing the proportionof the aged population that is older than 65 but younger than 75. Toeliminate the effect of the changing age composition of the elderly population,we can examine the trend in labor force participation rates at specific ages. Figure1-1 shows participation rates at ages 60, 62, 65, and 68 during the forty-fiveyears after 1965. The figure shows participation rates for women and men,respectively. The tabulations, performed by the BLS based on monthly CPSdata, show a decline in participation rates through the early to mid-1980s amongwomen and a drop through the early 1990s among men. For both men andwomen, participation rates have increased in the past two decades. They havealso increased by proportionately larger amounts at older ages. Among 68-year-oldmen, for example, the participation rate increased by more than half between1991 and 2010. Among 68-year-old women, the participation rate increased byabout two-thirds.

The estimates of male participation rates in figure 1-1 can be compared withthose of Ransom, Sutch, and Williamson (1991) for 1910, derived from thedecennial census for that year. Between 1910 and 1991 there were sizeable dropsin male...