Why is the U.S. economy stuck in low gear?
Among economists, two major culprits get most of the attention. First is anemic productivity growth. Productivity, output per worker hour, has increased at a disappointing average annual rate of 1.3 percent since 2005 compared to the 2.8 percent annual pace recorded in the previous 10 years. The reasons behind the productivity slowdown — especially the economic impact of technological innovations and lower levels of business and public investment — are heavily debated.
But little controversy shadows the second major factor: the demographics of an aging population. The oldest members of the baby boomer generation are filing for Medicare. About 8,000 boomers will celebrate their 65th birthday each month until 2030. Labor force growth is slow in a society with fewer young people and growing numbers of retirees.
“We observe the world how it is today and make these very simple projections and turn them into a terrible scenario,” said Johannes Koettl, senior economist at the World Bank’s Social Protection and Labor Global Practice. “This approach fails to take into account that the world is changing.”
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It is long past time to shed three pernicious myths about the U.S. economy and aging.
Myth No. 1: Older adults don’t work, so they weigh down the economy
You have most likely seen variations on the old-age dependency ratio. The ratio compares the number of people ages 15-64 (workers) with people 65 and older (retired, not working). It paints the familiar picture of an increasing number of nonworking older adults. The ratio is alarming since it assumes everyone 65 and over isn’t working.
But millions of older Americans are staying employed or looking for work well into the traditional retirement years. There are a variety of reasons: Boomers are well educated and healthier than previous generations. Work is less physically taxing in a service-dominated economy. More older people need an income to supplement slim savings.
Whatever the mix of motivations, the labor force participation rate of men 60 and over is up nearly one-third, to 35 percent today from a low of 26 percent in 1996, according to Barry P. Bosworth and Gary Burtless, economists at the Brookings Institution, and Kan Zhang, a senior research assistant at George Washington University. The participation rate of women shows a parallel increase, climbing to 25 percent from 15 percent.
According to projections by the Bureau of Labor Statistics, by 2024, men ages 65 to 74 could show a participation rate of 34 percent and women 26 percent.
Myth No. 2: Older workers are not productive
You have probably heard variations of this common belief while at work. The research tells a different story. “There is no evidence older workers aren’t as good at their jobs,” said Laura Carstensen, director of the Stanford Center on Longevity.
For example, Axel Borsch-Supan and Matthias Weiss of the Munich Center for the Economics of Aging analyzed data from a German truck assembly plant owned by Mercedes-Benz. Looking at standard error rates at the plant, they found statistically significant evidence of higher error rates for workers under 30 but no evidence of more mistakes as workers age into their 60s. Productivity improved all the way up to retirement at 65.
Myth No. 3: Older workers are blocking younger workers from the job market
The notion that the job market is a zero sum game — more jobs for one group translates into fewer jobs for another group — is deeply ingrained. Economists call the belief that there are only so many jobs in an economy the “lump of labor fallacy.”
But the truth is that growth in the number of jobs for older people tends to run in parallel with gains for younger workers.
“There isn’t a fixed number of jobs,” Carstensen said. “You grow the pie.”
Older workers won’t clog up the promotion pipeline for their younger peers, either. For instance, 58 percent of those age 50 and over who expect to remain in the work force plan to switch careers or employers in the future, according to the latest Working Longer survey by The Associated Press-NORC Center for Public Affairs Research. To stay competitive, more than a quarter of those surveyed recently completed job training or obtained additional education.
The bottom line? One way to help get the economy out of its rut would be to embrace policies that encourage older Americans to stay employed and for employers to appreciate their aging work force.