- Studies conclude that unemployment insurance extensions increased the unemployment rate by .4 to .8 percentage points.
- Today there are almost 5.9 million fewer individuals under the age of 55 working than there were in late 2007.
- Reducing the incentives for Americans to find jobs comes at both an economic and a human cost.
A reporter asked me the other day about extending unemployment-insurance (UI) benefits, which have been part of budget talks to avert the "fiscal cliff." I noted that, while a UI extension would help the many Americans who truly can't find a job, it also would increase the unemployment rate by reducing the incentive to find a job for those who can do so. I pointed to two Federal Reserve studies concluding that the UI extensions already in place increased the unemployment rate by 0.4 to 0.8 percentage points. That's up to 1.2 million more unemployed Americans, which is a non-trivial number both for the taxpayer and for the unemployed themselves, given that time away from work can erode a person's skills and lead to lower pay down the road.
Non-economists rarely find this kind of stuff convincing, so I dug up some Bureau of Labor Statistics data showing the change in employment from the third quarter of 2007, when the recession really kicked in, to the third quarter of 2012. I broke these figures down by age, and the results are pretty counterintuitive. Americans of all ages lost jobs during the recession, but common sense suggests that older workers would have the toughest time finding new employment. They're paid more, they cost more in terms of benefits, and their technical skills may not be exactly cutting-edge. So the recovery, such as it has been, should have been stronger among the young.
But older workers are also highly motivated: A younger person might decide to ride out the recession on his parents' couch, but older workers need to rebuild their shrunken 401(k) balances and find health coverage.
And these incentives to seek jobs seem to matter: Today there are almost 5.9 million fewer individuals under the age of 55 working than there were in late 2007. But there are 5.2 million more Americans over 55 working than before. Employment among Americans aged 55-64 has risen by 17 percent, and for the 65+ group it's risen by over one-third. Even looking at employment-to-population ratios, which account for the rising numbers of older Americans, employment among the 55-64 age group has recovered to 2007 levels and has actually risen among those age 65+.
Okay, but maybe these desperate grey-hairs found employment only by taking whatever jobs were available, however little they paid. But again, that's not what the data show: Younger Americans who are working earn 6-8 percent more per week than five years ago - about enough to make up for inflation, but not a lot more. By contrast, workers aged 55-64 are earning 12 percent more than before (about $100 more per week), while workers over 65 are earning 27 percent more weekly than in 2007. Over a 50-week work year, the typical 65+ worker is earning $8,100 more today than five years ago.
Is it unfortunate that so many older Americans have been forced to work longer when many might prefer to have retired? Of course. But given their desperate need to improve their financial situation, it's better to have the option to work than not.
More workers, earning higher pay, in one of the toughest labor markets in recent history. This isn't to say that everyone can get a job if they want one. But the relative success of older American workers suggests it certainly doesn't hurt to be motivated. Extending unemployment benefits again may be a no-brainer politically, but reducing the incentives for Americans to find jobs comes at both an economic and a human cost.
Andrew G. Biggs is a resident scholar at AEI.