Why Are So Many Boomers Working Longer?

John Mauldin |
There has been quite a lot of controversy in recent years around the idea that older workers – whose numbers are growing – have been taking jobs away from younger ones. Their numbers have certainly increased dramatically: the percentage of the labor force that is 55 or older grew from 29.4% in 1993 to 40.3% in 2013. And the unemployment rates of those 55 and older have dropped much faster than for younger cohorts; in fact we have seen those who are older than 55 take “market share” from the youngest. These are trends I’ve written about over the past year.

But did that increase and those trends cut into the employment prospects of young people? That is the central issue examined in today’s Outside the Box, which is an article by James J. Green that recently appeared on the ThinkAdvisor site. Green also does a nice job of laying out the reasons why Boomers are staying on the job. I have to admit that I was surprised by a few of the items he brought to my attention, and I think they’re worth thinking about.

But a lot of new ideas have come to my attention of late. Since I’m leaving for Europe in a few hours, I’ve been trying to call all of the speakers who will be on stage with me at the Strategic Investment Conference in just a few weeks, going over some of the logistics but mostly trying to probe a little bit to get an idea of the topics they will be covering. The theme of the conference is “Investing in an Age of Transformation,” and my hope is that the attendees and those who listen to the audio CDs will come away with a deeper and more complete sense of the powerful trends that are at play in the world today – and what to do about them now. How do you position your portfolios – not just to both protect yourself from the changes but also to take advantage of them?

I can honestly say I’m more excited about this conference than I was prior to any of the past ten. We kick off the conference with the always fascinating and prescient David Rosenberg. Last year at our conference he announced his transition to bond bear and full-on market bull and gave a strong presentation as to his reasons why. After David speaks, Rich Yamarone (chief economist at Bloomberg) and David Zervos (chief economist at Jefferies) will engage in a bull and bear debate but also share their usual thoughtful presentations on the investment climate. Jeff Gundlach of DoubleLine, whom Barron’s has dubbed the King of Bonds, will then take us behind the scenes in the world of fixed-income investing. You simply do not want to miss his PowerPoint presentation and powerful delivery.

My good friend Pat Cox of Transformation Technology Alert (a Mauldin Economics publication, I might add!) will talk about the amazing changes that are bubbling up in the technology space, with a focus on biotech and aging. Kyle Bass follows after lunch with what I can guarantee will be one of the most thought-provoking presentations at the conference. He has a smooth, confident delivery that is backed up by impeccable research. Then Gary Shilling will give us a lightning-fast presentation touching on the major facets of the world scene (he does seem to get to everything in 45 minutes – fasten your seatbelts), before my co-author Jonathan Tepper and Grant  Williams, the inimitable author of Things That Make You Go Hmmm..., double-team us with a joint presentation focusing on the view from London and Singapore and how international markets will fare in the near future. That night at dinner, three-star admiral Robert Harward, a Navy Seal and commander of the Seals prior to his very recent retirement, will tell us what it’s like to sit in the catbird seat, leading the best of our young men and women. I’m sure he will be talking about a few special nights in the recent past. (Think Osama bin Laden.) And that’s just day one.

Dylan Grice leads off the next day, and I don’t want to tip off his speech, but you want to be there. Somehow or other I’m supposed to follow his performance. I’ve been working on my speech for quite some time, as I want to develop a new theme. Without exception, the speakers who come to my conference always bring their “A games” to the podium, and so I have to try to elevate my own presentation just to keep up.

I made sure I wouldn’t follow Newt Gingrich, who will come up on the stage after me. He will be followed by Neil Howe (author of The Fourth Turning), who is probably the best demographer and analyst of generational trends in the world today. Two summers ago I had the pleasure of spending several long evenings with Newt and Neil as they made the history of the world come alive for hours on end. I live for experiences like that and am always looking for more of them. Listening to those two makes me realize just how much more there is to learn and think about. If Pat Cox and some of his friends can show me how to get an extra 40 to 50 years, I will need them just to catch up with Neil and Newt.

Paul McCulley will regale us at lunch the second day, in the slow Southern drawl delivery he learned at the knee of his Southern Baptist daddy. I sometimes feel like we should pass the collection plate after he’s finished his sermon. Then we’ll go to the other extreme as Dr. Lacy Hunt presents his latest research, which will not be as optimistic with regard to central banks as Paul will have been. Lacy is simply an intellectual force of nature. If you attend the conference, make sure you figure out how to spend a few moments in his space. He is very approachable, as are most of the speakers. Following a panel of some of the speakers, we’ll hear from George Gilder (Wall Street Journal contributing editor) and Stephen Moore (conservative thought leader) as they talk about the need for a new economics and a new politics. That night there is a poolside dinner where you can mingle with fellow attendees and the speakers.

And then we come to the third morning. Dear gods, you will need to fasten your seatbelt for this one. We start with geopolitical expert Ian Bremmer, who will lead us on a deep dive into the global situation and delight us with his inside stories of personal interactions with the global leaders who shape the nightly news. Anatole Kaletsky, the best-known economic journalist in Europe (and on whose cell phone are the direct-dial numbers of the biggest investors and global leaders in Europe), is going to reflect on where the global opportunities are; and then the one and only, the indomitable Niall Ferguson will share his incisive – possibly even incendiary! –thoughts about the problems and opportunities that China poses for the rest of the world. Finally, I will get Ian, Anatole, and Niall back up on stage for a panel discussion to close the conference.

That, my friends, is how to put together a conference that will expand our horizons as it deepens our understanding of the world. I design a conference that I want to attend, and then I invite all my friends to come. There are still some spots available, so maybe you should think about attending – there is simply nothing like being there, given all the opportunities for conversation and interaction; but if you can’t, then go ahead and purchase your audio CDs now for a discount off the post-conference price. You can register here or purchase CDs here. I hope to see you in San Diego May 13-16!

The driver will be here in less than two hours, so I really need to begin to think about packing and getting ready. I go to bed tonight somewhere over New York and wake up in London, then hop a quick plane to Amsterdam, where I will do some speeches for VBA Beleggingsprofessionals and then take a few days to see the area, spending a night in Delft and then slowly driving through the countryside to Brussels. I will spend the following few days with Geert Wellens of Econopolis in Brussels and then Geneva.

Last night the Dallas Mavericks lost a heartbreaker in the final few minutes to San Antonio, tying the series but requiring us, however improbably, to win two more games from the world champions. We came back from 20 points down to go ahead with not all that much time left, but we just couldn’t finish it. That’s the difference a few years makes. Four years ago this team closes it big-time. But it’s not over till it’s over, and every game has been back and forth. You really do like to see “your” team win in the end. I know that in reality it’s just one set of highly paid professionals vs. another, but it’s that human dynamic of our tribe versus their tribe, just without the swords and clubs. A lot more civilized and played by modern warriors doing things on the court that we mere mortals can only watch in awe. (But it would help if the referees weren’t so clearly in the tank for San Antonio and Tim Duncan. Just saying…)

I will be writing this weekend’s letter from Amsterdam, and my intention is to write about the thought process I went through in getting my mortgage and the terms I was offered, and how I am (finally!) hedging my mortgage in yen (and at what cost). I will also offer some comments on housing and Japan. It should make for an interesting letter and give you a glimpse at how I take my real-world economic analysis and turn it into actual investment decisions and trades. Until the weekend,

Your not quite ready for how expensive Europe will be analyst,

John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com

Why Are So Many Boomers Working Longer?

By James J. Green
ThinkAdviser, April 17, 2014

Market watchers — or at least those pundits who are required to provide a reason for why the markets go up or down on a given day — love to speculate beforehand on the monthly employment figures, and then react quickly when the Department of Labor releases them. Those pundits, and their audiences, might be better served by looking at longer ranges of data on employment, such as the recently released Labor-force Participation Rates of the Population Ages 55 and Older, 2013, by the Employee Benefit Research Institute.

That report was written by EBRI’s Craig Copeland and considers data from the Census Bureau and the Bureau of Labor Statistics, along with EBRI’s own Retirement Confidence Survey. It concludes that labor force participation rates have increased for older Americans from the 1990s to the present, while the participation rate has fallen for younger Americans. That raises the question of why older Americans are working longer, and whether, as has been surmised, older Americans are “taking” jobs from younger Americans. As Copeland writes, “it appears either that older workers filled the void left by younger workers’ lower participation, or that higher older-worker participation limited the opportunities for younger workers or discouraged them from participating in the labor force.”

Before getting into that issue, some definitions are in order. First, the "labor force participation rate" measures those individuals in a specific age group who are “working or actively pursuing work,” which Copeland points out “is different from the share of those actually working who fall into a specific category.”

Second, let’s define the scope of the issue. Copeland says that the percentage of civilian, noninstitutionalized Americans near or at retirement age (age 55 or older) in the labor force increased from 29.4% in 1993 to 40.3% in 2013. In the report’s summary, Copeland writes:

  • For those ages 55–64, the upward trend was driven almost exclusively by the increased labor-force participation of women, whereas the male participation rate was flat to declining. However, among those ages 65 or older, the rate increased for both males and females over that period.
     
  • This upward trend in labor-force participation by older workers is likely related to workers’ current need for continued access to employment-based health insurance and for more years of earnings to accumulate savings in defined contribution (401(k)-type) plans and/or to pay down debt.
     
  • Many Americans also want to work longer, especially those with more education for whom more meaningful jobs are available that can be performed into older ages.

To return to the question of whether older people are "crowding out" younger people from jobs, it’s beyond the scope of the EBRI research to answer, but it turns out it has already been definitively addressed by researchers at Boston College’s Center for Retirement Research. The answer is no.

A 2012 paper by Alicia Munnell and April Yanyuan Wu, Are Aging Baby Boomers Squeezing Young Workers Out of Jobs?, is a serious academic work, discussing the “lump of labor” theory (the original "crowding out" theory from the mid-19th century), reviewing and analyzing the data, testing the theory, including a separate test “for the Great Recession” and exploring the "causal relationship between the labor force activity of the old and the young.” The conclusion?

“This horse has been beaten to death. An exhaustive search found no evidence to support the lump of labor theory in the United States. In fact, the evidence suggests that greater employment of older persons leads to better outcomes for the young — reduced unemployement, increased employment and a higher wage.” Moreover, these “patterns are consistent” for both men and women and for groups with different education levels, and were no different during the financial crisis, or Great Recession if you prefer.

So why should you care, as an advisor and/or as a member of this society? First, American workers are “undergoing a significant period of aging that appears likely to continue,” the EBRI paper points out. As evidence, Copeland cites EBRI’s most recent Retirement Confidence Survey (RCS), which found that “a growing percentage of workers expect to retire at later ages both because of the reasons described above [for health insurance, to pay down debt and to save longer for retirement] and/or because of an increased desire to continue to work.”

Older people want to work longer, at least those who enjoy their work, which in turn is directly correlated to how much education a worker has. “Overall, as workers’ educational attainment increased, their labor-force participation rate also increased,” Copeland reports. For example, in 2012, “60.7% of individuals with a graduate or professional degree were in the labor force, compared with 23.9% of those without a high school diploma.”

So that’s the entire labor force. What about older people and education? How did the financial crisis affect these workers?

“The recent economic downturn did not alter the trend of older workers in the labor force,” writes Copeland, “rather, it appears that this remained the trend, as more opportunities for older workers exist that correspond to their increased educational attainment. In fact, the increase in the percentage of those 55 or older in the labor force increased with the higher incidence of more highly educated people in this age group.” 

So baby boomers, who are more highly educated than previous generations, are working longer. Millennials – those age 25 to 32 – are the most highly educated generation in American history: 34% have at least a bachelor’s degree.

Let’s compare boomers with millennials. A Feb. 2014 survey by Pew Research found  that way back in 1979, “when the first wave of baby boomers were the same age that millennials are today,” the typical high school graduate earned about three-quarters (77%) of what a college graduate made. “Today, millennials with only a high school diploma earn 62% of what the typical college graduate earns.” That same study compared educational levels of prior generations at the same age as millennials: only 13% of 25- to 32-year-olds in 1965 had a college degree; of the “early” boomers who were age 25 to 32 in 1979, 24% held college degrees.

However, actual worker earnings have stayed nearly flat for each cohort of 25- to 32-year-olds since 1965: from $30,892 in 1965 to  $35,000 in 2012 (in 2012 dollars).

So here’s where we stand. The boomer clients you have now are more likely to work longer, for a number of reasons but buttressed by the fact that they like to work (sound familiar, advisors?), which is positively correlated to being better educated.

The generations that follow the boomers will be even better educated, and so are more likely to work even longer and for the same reasons. One big caveat: the Affordable Care Act may make it less necessary for older workers to be employed merely for the health insurance they want and need. So we’ll have to see how that will play out.

But maybe Social Security is a little healthier than we thought. If you continue to work into older age, you’ll still be paying your Social Security taxes (as will your employer, of course); and you’ll be paying income tax if you take Social Security benefits while you’re still working, depending on your total income.

Yes, not everyone is able to work due to health issues as they age, but higher longevity added to more educated people working longer will be a net benefit to the Social Security system and to society. And remember, old people are not keeping young people down, at least when it comes to jobs.

Like Outside the Box?
Sign up today and get each new issue delivered free to your inbox.
It's your opportunity to get the news John Mauldin thinks matters most to your finances.

© 2013 Mauldin Economics. All Rights Reserved.
Outside the Box is a free weekly economic e-letter by best-selling author and renowned financial expert, John Mauldin. You can learn more and get your free subscription by visiting www.MauldinEconomics.com.
Please write to subscribers@mauldineconomics.com to inform us of any reproductions, including when and where copy will be reproduced. You must keep the letter intact, from introduction to disclaimers. If you would like to quote brief portions only, please reference www.MauldinEconomics.com.
To subscribe to John Mauldin's e-letter, please click here: http://www.mauldineconomics.com/subscribe
To change your email address, please click here: http://www.mauldineconomics.com/change-address

Outside the Box and MauldinEconomics.com is not an offering for any investment. It represents only the opinions of John Mauldin and those that he interviews. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with, Mauldin's other firms. John Mauldin is the Chairman of Mauldin Economics, LLC. He also is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states, President and registered representative of Millennium Wave Securities, LLC, (MWS) member FINRA, SIPC, through which securities may be offered . MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB) and NFA Member. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article. Mauldin companies may have a marketing relationship with products and services mentioned in this letter for a fee.

Note: Joining The Mauldin Circle is not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for investors who have registered with Millennium Wave Investments and its partners at http://www.MauldinCircle.com (formerly AccreditedInvestor.ws) or directly related websites. The Mauldin Circle may send out material that is provided on a confidential basis, and subscribers to the Mauldin Circle are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private and non-private investment offerings with other independent firms such as Altegris Investments; Capital Management Group; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Investment offerings recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor’s interest in alternative investments, and none is expected to develop.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ANIOY Acerinox Sa Unsp/Adr 5.60 0.00 0.00 0

Comments

Emerging Growth

Kiwa Bio-Tech Products Group Corp

Kiwa Bio-Tech Products Group Corp develops, manufactures, distributes and markets, cost-effective and environmentally safe bio-technological products for agriculture in China.

Private Markets

Knightscope

Autonomous security robots providing advanced detection capabilities at $7 per hour - aiming to define the future of security. Help #StopTheViolence.

Snapwire

A peer-to-Peer authentic photo marketplace disrupting the $10B commercial photography industry.