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How boomers will change retirement and jobless rates

A worker at his retirement party in Wisconsin. Credit: Lester (Wisconsin) Public Library

On Jan. 1, 2011, the first baby boomers turned 65. And now, every day for the next 19 years, about 10,000 more will cross that threshold, according to the Pew Research Center. By 2030, when all baby boomers will have turned 65, about 18 percent of the nation’s population will be at least 65 or older compared with about 13 percent now, Pew said.

The boomers have changed just about every institution and lifestyle question they have touched as the huge cohort (it’s about 23 percent of the total population) moved through life. And there is no question they’re about to change retirement.  But one of the most interesting pieces is the impact the boomers already are having on the labor force in the United States.

That impact could, perhaps inadvertently, change the presidential election race this year because the size of the labor force is one of the ingredients that goes into the ratio that determines the national unemployment rate.  The size has been shrinking rapidly in the past few years and most believe the drop has been caused by the Great Recession. Workers have just given up and dropped out, becoming so-called “missing workers.”

So when the economy begins to improve, the missing workers show up again, boosting the work force and pushing the unemployment rate up despite the fact that the economy continues to improve. Since most of us regard the unemployment rate as a good barometer of the economy, a rising rate could be bad news for President Barack Obama and good news for whoever the Republican challenger is.

Another factor is that many in the work force are working longer, well past the traditional retirement age. My own situation is illustrative of the issue and how people and jobs are counted. I am nearing 70 but still consider myself employed, at least part time, as a consultant and, of course, writing for Crosscut.  So how would I be counted in the employment figures?

“You wouldn’t show up in the payroll numbers which count jobs, not people,” said David Wallace, economist with the Washington Employment Security Department. “However, the household survey would find you employed — assuming that was the answer you gave them.”

The Bureau of Labor Statistics, keeper of employment and unemployment data, has two monthly surveys that measure employment levels and trends —the Current Population Survey, also known as the household survey, and the Current Employment Statistics survey, also known as the payroll or establishment survey.  The payroll survey provides a highly reliable gauge of monthly change in nonfarm payroll employment. The household survey provides a broader picture of employment, including agriculture and the self employed. And both are important to understanding how the economy is doing.

So while I might be counted in at least one of the labor surveys, a larger percentage of people turning 65 are retiring. A recent article by the Chicago Federal Reserve Bank estimated that at least half of the decline in the labor force participation rate (LFPR) in the recent recession was due to retirement.

The participation rate, simply the percentage of people in the general population who are working, peaked at 67.3 percent in early 2000 and then fell by 3.6 percent­age points to 63.7 percent as of January 2012, a decline more than twice as large as any since World War II, according to the Chicago Federal Reserve Bank.

The Chicago Fed concluded that “labor force participation has fallen significantly over the past decade. At least some of this decline is due to the recent deep recession and lackluster recovery. Additionally, for quite some time, economists have forecasted that shifting demographics, particularly in the age structure of the population, would put downward pressure on labor force activity. We estimate that just un­der half of the decline in LFPR since 2000 is due to such factors. We expect these demographic patterns to continue for at least the next decade, and likely far beyond, as the large baby boom cohort continues the transition into retirement.”

This may all seem arcane economics, but there are some significant implications for both the economy and the election this fall. 

After most recessions when a recovery begins, people start to re-enter the labor force. Much was made of the fact that the labor force participation rate increased from 63.7 percent in January to 63.9 percent in February, for example. Workers were returning.

This could have an impact on unemployment rates. The Bureau of Labor Statistics (BLS) keeps alternative rates of unemployment. One, called the U-4 rate measures total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. That stood at 8.9 percent in February, above the 8.3 percent general unemployment rate. In Washington State, the U-4 rate was 10.2 percent in February vs. the overall unemployment rate of 8.2 percent.

But if boomers continue to retire and leave the labor force, it means the unemployment rate is unlikely to rise in the months ahead. Workers returning to the labor force will be offset by the boomers leaving the work force.  The unemployment rate might get a bit sticky, holding around the 8.3 percent rate, but it is unlikely to rise much either. 

The employment report out today (Friday, April 6) was disappointing in regard to the economic recovery.  Only 120,000 new positions were added in March, much fewer than the 200,000-plus expected.  The unemployment rate dropped to 8.2 percent but only because fewer people were looking for work — only people actively looking for a job are counted in the labor force.

And the participation rate fell slightly to 63.8 percent, another indication that the workers are not completely confident in the recovery. Or, to reinforce the point of this article, perhaps more baby boomers are deciding to stop work and retire.

The 12.7 million who are unemployment remained little changed in March, according to the new BLS report. Other parts of the report were equally uninspiring. and the unemployment rate (8.2 percent) were both little changed in March.

  • The number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged at 5.3 million.
  • The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 8.1 to 7.7 million over the month.
  • About 2.4 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.

If the theory that all politics is local is correct, then the local figures are also moving in President Obama’s direction. The BLS said in late March that state unemployment rates were little changed in February. Twenty-nine states recorded unemployment rate decreases, eight states posted rate increases, and 13 states and the District of Columbia had no change. The state with the largest increase in employment was “battle-ground” Ohio, up nearly 25,000 jobs. 

On an even more local scale, the BLS said unemployment rates were lower in January than a year earlier in 345 of the 372 metropolitan areas, higher in 16 areas, and unchanged in 11 areas. Seattle was one of the metro areas with a lower rate – 8.1 percent this January compared with 9.6 percent a year ago.

Footnote: The Employment Security Department said on Tuesday that Washington’s improving unemployment rate will reduce the maximum weeks of unemployment benefits from 99 weeks to 73 weeks for most eligible workers after April 21.

“We are at a difficult point, where our unemployment rate is greatly improved, yet still relatively high,” Employment Security Commissioner Paul Trause said in a statement. “Losing up to six months of benefits will make the unemployment situation a lot more urgent for thousands of families.”

Currently, there are two long-term-benefits programs available in Washington after an eligible unemployed worker runs out of regular benefits. Regular benefits last up to 26 weeks and are paid by the state’s unemployment trust fund. Both of the long-term-benefits programs are funded by the federal government, and they trigger on and off based on the state’s unemployment rate. 

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