Many older workers are holding on to their jobs instead of retiring — and that’s causing a logjam in the labor market.
After reaching a historic peak in 2000, the labor force participation rate — the sum of workers and those who want to work as a proportion of the working-age population — “drifted gradually downward,” says Patrick O’Keefe, director of economic research at CohnReznick, an accounting and advisory firm. The decline accelerated with the 2008 recession and the rate fell to a 36-year low of 62.8% at the end of 2013 and, he says, “has hovered around that level since.” The rate was at 62.9% in January 2015.
There’s been a sharp decline in labor force participation among younger workers (aged 16 to 24) and prime-age working adults (aged 25 to 54), according to the most recent Bureau of Labor Statistics figures, while older workers have been holding on to their jobs. “Coincidentally, a larger share of baby boomers, an exceptionally large cohort, continues to participate at historically high levels,” O’Keefe says. “Fewer Americans have or are seeking jobs and that has long-term implications for the U.S. economy and economic policy.”
In the fourth quarter, the labor force participation rate of younger workers was just 55.5% after holding steady at about 66% from 1998 to 2000, and participation by the prime earning group (ages 25 to 54) was unchanged at 80.8% after peaking at 84.4% in early 2000. However, participation among those approaching retirement had slipped only slightly from the mid-2010 post-war record rate of 65.3% to 64.3% in the most recent quarter and was 18.6% for those 65-plus, just shy of a two-year high of 19%.
Americans have either decided to remain in the workforce at a time when they might have otherwise retired due to finances or because they like working, “and that has meant greater competition for jobs,” says Mark Hamrick, Washington bureau chief at personal finance site Bankrate.com. Only 26% of Americans have a traditional notion of retirement in which they plan to stop working altogether, according to a new survey of 7,000 households released last week by The Pew Charitable Trusts.
Many Generation Xers — those born between 1965 and 1980 — are stuck in middle management and waiting for leadership jobs, says Dan Schawbel, founder of WorkplaceTrends.com. “They’re the most stressed out, raising children, hit hardest by the property market crash and impatient and frustrated because they want to seize those executive-level roles, but they’re going up against boomers who are not ready to leave,” he says. “But they potentially have the first shot when these positions become available.”
This creates problems for those at the bottom of the ladder.
Many millennials — born between 1981 and 1996 — are choosing to stay in college longer and go to graduate school, a decision designed to help their employment and wage prospects in later years, Bankrate.com’s Hamrick says. “This also helps explain why the near-term financial prospects for many young people have been dampened early,” he adds. “The result is a ripple effect touching on many things including the housing market, vehicle purchases and saving for retirement.”
This is also manifested in the trend of more young people living at home. A record high of 21.6 million millennials were living with their parents in 2012, up from 18.5 million of their same-aged counterparts in 2007, according to a 2013 report released by the Pew Research Center. Of these young people living at home, at least a third and perhaps as many as half were estimated to be college students, Pew found. One theory: With more boomers working, Generation Xers are holding on to jobs that were once available to millennials.
Boomers, meanwhile, are hanging on, too. CohnReznick‘s O’Keefe, 68, is one such case. “I have a job that requires virtually no physical activity,” he says. “Many of my peers are still in the process of repairing the damage of the twin meltdowns.” Technology has also rendered many jobs obsolete in recent years, he adds. “Changes in calculations that used to take a couple of days now take minutes,” he says. “We didn’t have electronic calculators back then. We actually knew how to do a square root or calculate compound interest.”