Oregon Office of Economic Analysis

The prospect of pandemic-related retirements was one labor supply issue that we left on the cutting room floor of our joint report with the Employment Deparment last month. It’s worth exploring a bit further, especially as Jed Kolko is out in the NYT this morning with a national article on the topic, and I just so happened to have finished updating our retirement projections yesterday 🙂

First, Jed finds that the share of older Americans who are not working and specifically say they are retired did increase a little bit in the past year. Our office takes a bit of a more holistic view of retirement in Oregon — we count anyone 60 years and older who is out of the labor force for whatever reason, in part because the splitting the already small sample into the different possible answers yields some noisy results. Even so, we know retirements have been large in recent years.

The labor market is tight for demographic reasons, irrespective of the business cycle. The inflows into the labor market (young adults) are basically equal to the outflows. The tight demographics are expected to remain for the next handful of years as a large number of Baby Boomers retire each year. That means labor force gains will be smaller on net, and come from in-migration and other middle-aged adults returning to the workforce in search of the more-plentiful, and higher-paying job opportunities. Wage growth should remain strong as a result.

This overall dynamic is not new and these demographic patterns are a key piece to the labor market and public revenue outlook in the decade ahead. Our office dug into retirements in more detail nearly five years ago, and again two years ago.

Today a key question is whether the increase in retirements was forced due to involuntary job loss versus planned or based on the strong asset markets that better support retiring financially. Here the data points more to the former, rather than the latter. In his research, Jed finds the increase in retirements nationwide among those in their late 50s or early 60s occurred right at the start of the pandemic, and was concentrated among those without a college degree. Retirements did not pick up or accelerate later in 2020 or in early 2021 when the impact of the record home prices and stock markets would make retiring easier from a financial standpoint.

Now, another factor in play here may be Social Security. We know that 1 in 10 Oregonians in the workforce is eligible for Social Security. They can retire today and have the security of at least receiving some benefits, regardless of whether or not personal savings is adequate or at an all-time or the like. It is possible that some workers immediately chose this option at the start of the pandemic, especially in light of the fact that the health impacts of the virus were much more severe among our older friends, family, and neighbors than on our younger ones. Case in point, the increase in those receiving Social Security has slowed nationally but for the terrible reason that deaths have increased during the pandemic.

Looking forward it can be hard to know whether the current job losses among older workers will be permanent or whether some workers will come back when it is safe to do so.

The table below shows job losses by major occupational group in the past year for the overall economy and for older workers. What it shows is older workers have seen much larger job losses overall, but they are really concentrated in a handful of occupations. Teachers account for nearly half of the overall gap. There are a variety of reasons this makes sense. First, we know substitute use is down with online learning and many substitutes are retired teachers. Second, in some other states, schools returned to in-person learning earlier and teachers may not have been a vaccination priority group, increasing the health risks. Many older teachers may have taken the pandemic as an “opportunity” to retire.

Besides teachers, there were large job losses among Community Service occupations, specifically clergy. Additionally in Health Support, or lower skilled nursing or health aid jobs. These jobs, along with teaching, are high contact, in-person services which exposes workers to the virus to a greater degree. Together they account for 70% of the gap in terms of older workers being harder hit than the overalle economy in the past year.

On the flipside, high-wage jobs were largely unaffected, especially among older workers. This, like Jed’s educational attainment findings, is at least an indication that strong asset markets were not a primary driver of retirements in the past year.

Bottom Line: Older workers have become increasingly important for the overall economy. Retirements are both a disruption and an opportunity. The disruption is because firms lose valuable employees with a lifetime of experience. The opportunity is for younger workers to step into these roles. These transitions are not seamless, and play out over years, if not decades. The pandemic may have accelerated some of these changes, but it is hard to fully nail down in the current data. That said, these broader demographic patterns will be with us for the foreseeable future and have big impacts on the economy.