Oregon Office of Economic Analysis

Demographics are a powerful force. Next year the oldest Baby Boomers will turn 75 years old. In fact, over the next decade the fastest growing age cohorts in Oregon will all be 70 years old or older. Now, even though Oregon sees a little bit of retiree migration, this growth is almost entirely about the aging population.

The aging of the Silent Generation and the Baby Boomers is also having a tremendous impact on the regional and national economies. See Conor Sen’s recent article for more. It is weighing on growth rates of pretty much everything as they are exiting the workforce and shifting their incomes from wages to retirement accounts and Social Security. Over the years our office has covered much of this ground, however it’s been a few years since we’ve specifically discussed retirements and the outlook.

A handful of years ago we expected 2016-2020 to be the peak of the retirement flows, that is the absolute number of retirements each year would be at their largest. Well, this hasn’t come to pass. In fact, over the past 3 years, actual retirements in Oregon have been only about half of what would have been expected based on demographics alone. Why? Older Oregonians are working to a larger degree. This goes for both relative to the past decade, but also when put in comparison to historical figures.

60 year old Oregonians are working at their highest rate today than at any point in recorded history (data back to 1900, not shown here). Additionally, Oregonians in their mid-60s through early-70s are working at higher rates than anything we’ve seen since the Great Society and War on Poverty began. There was a big decline in employment among older cohorts after the introduction of cost-of-living adjustments for Social Security in the 1950s, Medicare in the 1960s, and increases in old-age survivor benefits, SSI and the like. But these trends have reversed some in the past 20 years.

A key question is whether or not this increase in employment among older Americans and Oregonians is a good development. As we’ve previously discussed (HERE, HERE) there are a number of factors at play. (This also borrows from ECONorthwest’s Dr. Kevin Cahill’s work as covered a bit more in the second link)

Some, like the increased social security retirement age, lower savings and private pensions moving to defined contribution, mean older Americans are more exposed to macroeconomic fluctuations than previous generations and as a result need to work later in life. Others, like higher levels of educational attainment, improved health and less physically demanding jobs, allow individuals to work later in life if they choose to. While such changes impact individuals and their want or need to work, employers also face challenges and opportunities with older workers too.

Note that the increase in employment among 65 year olds may be in large part due to the increase in Social Security’s full retirement age from 65 to 67. This change was made in 1983, and age 67 fully impacts those born in 1959 or later. That said, we have seen similar, proportionate increases at age 67, and at 69 so it is unlikely Social Security is the only factor here.

Now, while older Oregonians may be working later in late for good and/or bad reasons, it has certainty been beneficial for local businesses. Companies are able to retain these workers with a lifetime of experience and institutional knowledge for their industries and firms. Such workers cannot instantaneously be replaced. It creates challenges for businesses to adjust and adapt when such workers exit the workforce. So keeping them in the labor force awhile longer is beneficial overall, particularly in a tight labor market like we have now.

All of that said, we know Father Time is undefeated. Given the underlying demographics, retirements are expected to remain at high levels throughout the coming decade. If we only look at the age distribution of the population, retirements are expected to be largest during the next few years. However, given we have seen employment rates and labor force participation rates (LFPR) rise in recent decades, some continuation of these trends is likely warranted given the discussion above. Even under this scenario where firms are able to retain their workers for a few more years, retirements will more or less hold steady at these historically high levels for the coming decade.

Bottom Line: Retirements will remain at high levels for the coming decade. The demographic crunch is here to stay for the foreseeable future. This puts pressure on the labor market in terms of businesses looking to hire and expand. It also opens up opportunities for younger workers to step into leadership positions. The generational churn in the labor market will mask job opportunities as net growth rates will be lower than in the past. For every retiring worker, a firm has to hire 2 workers to see positive job growth. The first worker simply replaces the retiree, representing no net growth. In the coming years, our office’s baseline employment outlook calls for <1% annual gains, with jobs increasing by 10-20,000 per year. Given retirements, the actual number of job openings for Millennials, Post-Millennials, Gen Z, or whatever we end up calling today’s youth, will be at 2-3 times as large. There will be enough jobs.