As the pandemic slowly comes to an end – or at least a pause – we’re now better able to gauge the impact of this huge disruption on the American workforce. It’s becoming clear that the number of people leaving their jobs due to retirement is increasing dramatically. For some, the pandemic has prompted a shift into a pleasant, well-funded retirement, made more comfortable by robust housing values and healthy balances in their 401(k) plans. But for others, according to this New York Times report, the pandemic forced them out of the workforce into a retirement that came far earlier than expected, with far more meager resources than they had anticipated.
“Retired” or “Unemployed”? For Some There’s Little Difference
“After years in which Americans worked later in life, the latest economic disruption has driven many out of the workforce prematurely,” writes the New York Times report, written by reporters Nelson Schwartz and Coral Murphy Marcos. “For a fortunate few, the decision was made possible by 401(k) accounts bulging from record stock values. That wealth, along with a surge in home values, has offered some the financial security to stop working well before Social Security and private pensions kick in.”
But many face a bleaker future. “Most of the early retirements are occurring among lower-income workers who were displaced by the pandemic and see little route back into the job market,” says the Times article. Schwartz and Marcos spoke with Teresa Ghilarducci, a professor of economics and policy analysis at the New School for Social Research in New York City. “They might call themselves retired, but basically they are unemployed and in a precarious state,” Ms. Ghilarducci said.
A Faster Wave of Workforce Departures than the Last Recession
According to Ms. Ghilarducci, economic downturns typically induce more people to leave the workforce, but there has been a faster wave of departures this time than during the 2008-9 recession. “After analyzing data from the Bureau of Labor Statistics and the University of Michigan Health and Retirement Study, Ms. Ghilarducci found that among people with incomes at or below the national median, 55 percent of retirements recently were involuntary.
By contrast, among the top 10 percent of earners, only 10 percent of exits were involuntary.”
“It’s a tale of two retirements,” Ms. Ghilarducci said.
The School Buses Stopped Coming
The New York Times cites one example of the ripple effect of the pandemic. Dee Dee and Dana Patten, aged 57 and 62, hadn’t planned to retire early. But when the lockdown triggered by the pandemic took hold, their mechanical repair shop in Platteville, Colorado, couldn’t keep going. That’s because most of their revenue came from inspecting school buses, and when in-person school stopped, so did the school buses. Their volume instantly dropped from 10-20 buses per day to zero.
Then when schools finally reopened, they had trouble finding a mechanic, and they couldn’t keep up on their own. They sold the business and Dana Patten applied for early Social Security benefits, bringing in a much lower payment than he would have received if he had waited a few more years. The Pattens, says the New York Times, are part “of the millions of Americans who have decided to retire since the pandemic began, part of a surge in early exits from the work force. The trend has broad implications for the labor market and is a sign of how the pandemic has transformed the economic landscape.”
Shift Toward Early Retirement Reverses a Trend
As the New York Times article points out, in the years before the pandemic the tendency was toward Americans working longer. “The shift toward early retirement reverses a long-running trend,” Schwartz and Marcos write. “The share of Americans over 65 still active in the work force is 50 percent higher than it was 20 years ago.” The reasons vary: some keep working because they have to, while others (often those in better health) find satisfaction and fulfillment in the workplace.
In the 15 months since the pandemic began, about 2.5 million Americans have retired, according to Gregory Daco of Oxford Economics. “That’s about twice the number who retired in 2019,” says the Times, “which means there are essentially 1.2 million fewer people in the work force over the age of 55 than would otherwise be expected.” Daco points out that this rush of early retirement does not bode well for the economy, because retired workers tend to spend more cautiously. Earlier retirements also put a strain on Social Security. “It’s more of a negative than a positive for the economy,” Daco says
Pew Research Study Confirms: Boomers are Retiring Faster
The New York Times article cites a study released last fall by Pew Research that puts the trend toward early retirement into perspective. “Until this year,” says the study, “the overall number of retired Boomers had been growing annually by about 2 million on average since 2011 (the year the oldest Boomer reached age 65), and the largest increase was 2.5 million between the third quarter of 2014 and 2015.” But when Pew compared the number of retired Boomers in the third quarter of 2020 versus the same period in 2019, the increase was 3.2 million.
The study also confirms that education and ethnicity have a lot to do with post-pandemic retirement status. The increase in Boomer retirement among those with just a high school diploma rose at twice the rate of those with a college degree. Also, the Hispanic Boomer population saw four times the rate of increase in reported retirement compared with their Caucasian counterparts. This disparity is due in part, Pew theorizes, to the fact that Hispanic women were hit disproportionately hard during the pandemic by the downturn in leisure and hospitality employment.
Older Workers Who Want to Stay on the Job May Lack Necessary Skills
“The premature retirement of millions of workers sensing a lack of opportunity may seem puzzling when many businesses are scrambling to find employees,” says the New York Times article – “a conundrum that has forced economists to rethink the workings of the labor market.” But part of the reason, the reporters suggest, lies in “a mismatch of skills between available workers and jobs.” In addition, many open positions after the pandemic have offered low wages and salaries which might be insufficient to draw otherwise qualified Boomers out of retirement.
The Times reporters spoke with Carl Tannenbaum, chief economist at Northern Trust in Chicago, who said these trends are alarming. “We already have a challenge of keeping labor force growth at decent levels,” he said. “Immigration is down, the birthrate is down, and it’s much harder for the economy to maintain its productive potential if all these folks stay retired.”
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(originally reported at www.nytimes.com)