Aging Boomers May Bring Fiscal Blessings Instead
Older workers who can’t retire comfortably are likely to be needed in the workplace as the economy grows, easing threats of an entitlement load
In 1935, Harry Hopkins, head of the Federal Emergency Relief Administration, took a call at his home from U.S. Treasury Secretary Henry Morganthau Jr. Both were on the New Deal committee whose work led to the creation of Social Security. At one point their conversation focused on the demographics of aging.
Hopkins: “Well, there are going to be twice as many old people 30 years from now, Henry, than there are now.”
Morganthau: “Well, I’ve gotten a very good analysis of this thing…I’m simply going to point out the danger spots…I’m not trying to say what they should do—I want to show them the bad curves….”
Hopkins: “That old age thing is a bad curve.”
Today, an ever-higher number of countries are moving into the “bad curve.” The roughly 76 million U.S. Baby boomers born between 1946 and 1964 are entering their retirement years. Japan and Old Europe are even older. Concerns over rising rocking-chair ratios are highest in the developed nations, but not exclusively. China is going through a gray revolution, too: The Middle Kingdom’s 60-and-older folks are projected to account for 30% of its population by 2050. When it comes to the demographics of aging, “the inflection point is right now,” says Scott Berg, manager of T. Rowe Price’s Global Large-Cap mutual fund.
Little wonder that the bad curve of aging is making investors nervous. Governments took on enormous debts to shore up their economies during the Great Recession. Investors fear that developed nations have added to their fiscal burden just as enormous entitlement spending obligations for older citizens are about to kick in. Greece, in other words, is the proverbial canary in the fiscal coal mine. “Over the next few years you’ll start to see the demographic impact and all of a sudden people will wake up,” says Scott Mather, managing director and head of global portfolio management at Pimco, the mutual fund behemoth. “It will be a big change-driver.”
The coming job glut…for boomers
At least for the U.S. economy, the dire forecasts may be overstated. The ranks of boomers expecting to kick back and retire soon are shrinking fast. A lifetime of poor savings habits—coupled with the devastating impact on retirement portfolios of two bear markets in eight years—have convinced many boomers that they’ll have to put in more time at the office. This should reduce the demands on Social Security and Medicare. “People will work longer in general since it’s the best way to get out their financial predicament,” says David Court, a director at McKinsey & Co. Adds Joseph F. Coughlin, director of the Massachusetts Institute of Technology’s AgeLab: “In the near future, the ‘new kid down the hall’ may, in fact, be someone’s grandmother in the next stage of her multi-act life.”
The jobs might well be there for the 55-plus worker, hard as it is to believe with the U.S. unemployment rate at 9.7% and the government’s broadest measure of combined unemployment-and-underemployment at 16.8%. That’s the conclusion of a recent set of studies by Barry Bluestone, Dean of the Public School of Public Policy and Urban Affairs at Northeastern University, and Mark Melnick, deputy director for research at the Boston Redevelopment Authority. (The research was underwritten by the MetLife Foundation and Civic Ventures, a nonprofit think tank that focuses on second and third careers.) “Using history as our guide, we believe that the economy will recover,” the scholars conclude. “When it does, given the population dynamics of the very near future, it’s clear that older adults will need to participate in the work force in numbers considerably larger than they do now, or the nation will be unable to fill millions of jobs between now and 2018.”
Just what are those population dynamics? Bluestone and Melnick’s economic model predicts weak employment growth of about 1% a year from 2008 through 2018. The comparable figures were 1.9% per year from 1988 to 1998, and 0.9% annually from 1998 to 2008. The scholars predict that 14.6 million additional nonfarm payroll jobs will be created by 2018—15.3 million if you include farmers and self-employed family members at work in family enterprises. Most jobs created will be in the economy’s knowledge- and skill-intensive sectors, especially health care, education, social services, and state and local government.
A gray revolution in HR policies?
The baby bust generation that followed the boomers is too small to fill those jobs. Using official projections of population growth and current labor force participation rates, and assuming there will be no major changes to immigration, anywhere from 5 million (using the nonfarm payroll measure) to 5.7 million jobs (using the broader calculation) could go begging.
It’s hard to imagine that employers will let from 30% to 40% of these additional jobs go begging over the next decade. Human resources departments will face growing pressure to retain older workers and welcome gray-haired hires. As when employers adjusted to adapt to women workers, companies in all kinds of industries will face demands to overhaul the workplace to make it friendlier to aging employees. For instance, workers may enjoy benefit package choices that better reflect their age; perhaps leave will be added for the birth of a grandchild, and eldercare policies could become as common as those for childcare are now.
Management may also devise multiple career paths. Incomes and promotions may still drive younger workers, speculates MIT’s Coughlin. Older employees might place greater value on flexibility and work they find meaningful. Government will also face ongoing demands to remove disincentives to working longer that are built into the health-care and retirement systems.
Labor market projection isn’t an exact science. A lot of unexpected events will happen between now and 2018. Nevertheless, the underlying demographic trend is compelling. Survey after survey has shown that a majority of boomers say they want to work in their elder years. They’re going to get their wish. Experienced workers will continue to use their knowledge and expertise to boost their employer’s competitiveness and productivity. They’ll pay taxes on their income for much longer than the Silent Generation that preceded them, making the government debt tab easier to meet.
Demographics may not be destiny, but it exerts a powerful influence on the economy. For the U.S., to paraphrase Harry Hopkins, the old age thing could become a good curve.
Farrell is contributing economics editor for BusinessWeek. You can also hear him on American Public Media’s nationally syndicated finance program, Marketplace Money, as well as on public radio’s business program Marketplace. His Sound Money column appears on BusinessWeek.com.
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