The RAND Corporation's Dr. Nicole Maestas discusses retirement and the American economy.
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GUEST: Nicole Maestas
AIR DATE: 09/01/2012
I’m Richard Heffner, your host on The Open Mind. And this is one of an occasional series of broadcast conversations … prepared in cooperation with the Alfred P. Sloan Foundation … on the subject of Americans working longer and our nation perhaps doing better as a result.
Joining me today in pursuing this theme of such profound social and personal significance to so many of us is the RAND Corporation’s Dr. Nicole Maestas, whose work focuses on the economics of retirement, health and disability … specifically on how longer work lives could ameliorate the economic effects of population aging.
Now, two years ago, in addressing the Committee on Finance of the United States Senate on “Encouraging Work at Older Ages”, my guest said, “The economic challenges posed by an aging society are significant. As the Baby Boomers age and retire, the ratio of non-workers to workers in the population is rising, causing society’s consumption needs to outpace growth in our productive capacity, and ultimately straining Social Security and Medicare and slowing economic growth.”
And so today I would ask Dr. Maestas if that’s really the heart of the matter, though it seems so counter-productive to economic illiterates like me who instead envision millions and millions of job-seeking younger people wanting desperately to shove us ancients into retirement … out of the way and out of the jobs they want but can’t get. What are the facts of the matter?
MAESTAS: It’s a very interesting argument that’s often made that somehow younger workers need older workers to step aside and retire … move out of jobs in order to kind of make way for the young.
It’s an argument that’s been made many, many times over the course of the last several decades and there’s hardly any evidence at all to back that up.
The fact of the matter now is that, you know, our national economy … employers need older workers. Coming … going forward we’re looking at the possibility of some significant labor shortages.
This is a direct result of population aging. The fact that you could potentially have more people retiring from the labor force than you have entering the labor force.
HEFFNER: Why does that seem so counter-intuitive?
MAESTAS: Which part?
HEFFNER: Well, the part of the older people should be staying …
HEFFNER: … because we need them …
HEFFNER: … for the job suppliers, for the working force.
HEFFNER: … when we know there are so many people out of work today.
MAESTAS: It’s useful to kind of separate the short term effects from the longer term, longer run view.
In the short run … in the immediate run, really, we are coming out of the worst economic recession in decades.
In the short run we look around, we see very high unemployment rates … there clearly aren’t enough jobs for people who want them, people who need them.
In the longer run, however … well, let’s put it this way … at present the, the dire economic situation is masking these demographic forces that are really underlying economic growth and where we’re headed in the long run.
So, as we start to emerge from the great recession, we’re likely to begin seeing more and more evidence of this imbalance. This imbalance between the number of people potentially exiting the work force and the number of people coming in to fulfill those positions.
HEFFNER: Interesting word that you used … you say “making” …
HEFFNER: … the real problem.
MAESTAS: That’s right. That’s right. That’s right. Yeah, it’s, its often hard … it’s, it’s actually been quite hard, I think, for people to kind of get their arms around this idea of population aging and, and how it’s beginning to play out.
How’s it’s even now playing out because we can’t see beyond the present statistics, the present situation where we are in very dire economic straits, unemployment is quite high, right.
But it’s there, it’s been there, it was there before, before the great recession took hold. It’s sort of temporarily obscured by the short terms forces of, of the recession.
And, and the recession will have longer lasting impacts, for sure. But, you know, the demographics that set all this in motion were determined back when the Baby Boom was born, you know, sixty years ago.
HEFFNER: But, it’s interesting to note that you’ve indicated that there has been, or at least, there had been …
HEFFNER: … a movement toward … away from the usual pattern of retirement.
MAESTAS: Yeah. Yeah.
HEFFNER: Tell me about that.
MAESTAS: Yeah. It’s, it’s been really interesting. And it has been underway for a long time. But not, not really talked about so much.
So, we’ve been able to show, looking back over decades of retirees that actually there has been a steady, a steady movement in toward these … we can call them “non-traditional” or less traditional retirement paths.
The traditional retirement path being, you know, work in your career job until, you know, the conventional retirement age and then stop working completely and never return to the labor force.
And what got me interested in this issue is I was a graduate student studying retirement behavior, analyzing the data and noting that more than a quarter of these individuals were returning to the labor force.
MAESTAS: Un-retiring. And it’s, you know, it’s completely puzzling from, you know, from an economics point of view, which I’m an economist, this was the view I was bringing to this question.
You know, why would you retire and then go back into the labor force?
HEFFNER: Well, why?
MAESTAS: You could have just stayed, right.
HEFFNER: What’s the answer?
MAESTAS: Well, the answer … there’s … I think there’s … well, here’s … here’s … here’s what we were worried about. We were worried the answer was that people were retiring and then discovering that they hadn’t saved enough. Or that say medical expenses, medical costs were increasing unexpectedly fast and that they were being driven back to work because of pretty dire economic circumstances.
And from a public policy perspective that’s a pretty serious … that would be a very serious problem if that were, indeed, the case. And, you know …
HEFFNER: But you’re saying it’s not the case.
MAESTAS: But it’s not. Yet this was the predominant view that was represented in the news media at the time.
And this was, you know, this … when we started looking at this really pre-dates the great recession and all.
When we actually went and looked at nationally representative data, longitudinal data tracking the same individuals over time as they approached their retirement, left the labor force and then re-entered. Well, it turned out that most people were actually intending to do this all along.
HEFFNER: Fooled you, huh?
MAESTAS: Yeah. Yeah. Well, I mean it’s really, really quite interesting.
HEFFNER: What’s the rationale?
MAESTAS: Lots of different reasons. But, you know, and so, of course, you know the reasons are as varied as, as people are varied. But, certainly one, one, one reason is, is just an opportunity to do something different.
So, if you think about it … once you’ve, you know, you’ve worked in your career position for many, many years, you finally reach that socially acceptable age where you can stop working, you have an income stream … perhaps from Social Security or, if you’re lucky to have had a private pension on the job, so you have income support, you can actually stop working and no one looks at you askance and now you have this freedom to do what you want to do.
So there was, I, I think, a lot of that underlies this un-retirement … or untraditional retirement paths, if you will. Just an opportunity to transition into something that people might find more fulfilling. But there are other motivations as well.
HEFFNER: Like what?
MAESTAS: Stress reduction. So we all … we see in these data that, umm, umm, people report feeling a lot of stress on the job, a lot of pressure and in fact, you can actually track rising stress as they approach retirement. Watch them leave their jobs, stress drops. And then you can see them flow back into the labor force and stress remains much more … much lower and more stable.
That correlates with a change in the type of job that they’re doing. So they’ve typically changed occupations, perhaps even changed industries.
HEFFNER: Have we recognized that pattern? Have we institutionalized that pattern? Have we in any way recognized that this is the way people function these days and do something about it?
MAESTAS: Yes and no. Increasingly we are seeing that this is incredibly common. In fact, you know, this was one of the main points of my early work on this … was this is much more common than we think … and in many ways it’s, you know, it’s very good news for a whole variety of reasons.
But it’s actually pretty good news for retirees themselves. So once you can say that for most people … not everybody, but for most people, it’s not that they got to retirement and then it turned out to be, you know, terrible, in the sense that they didn’t actually have enough money, they made mistakes in savings, and the like … once you can kind of set that aside and say, “That’s not the, the average experience, it’s actually something else. This is actually part of what people want to do, how they want to leave the labor force … then it’s, it’s … it’s entirely different and we can start looking to institutions, to employers, to public policy to enhance and facilitate people’s ability to leave the labor force in this way.
So we, we do see a steady increase in, or a steady change in, in public policies, in pension arrangements, employers offer a greater willingness on the part of employers to create and offer older workers the types of jobs that they desire. We’re just beginning to see all of this develop.
There’s still much more to do, but I would argue that “Yes”, there is already quite, quite a bit of movement in the direction of making this possible.
HEFFNER: Is RAND interested in recognizing movements or recognizing needs as expressed by what people do? And then suggesting in any way public policy to respond to, to match those actions?
MAESTAS: Yeah. Sure, sure. So, I mean one thing we’re … one thing we are very concerned about are what we would call “disincentives” for work …
HEFFNER: In the workplace?
MAESTAS: … well take what you know … so, you know … when RAND … we at RAND … you know we’re very interested in, you know, in public policy. So, you know, the main program that creates incentives or disincentives around retirement is Social Security.
And the Social Security program has had work disincentives in place. And …
MAESTAS: The retirement earnings test. We’ve gone …so the retirement earnings test … said that once you hit age 62, if you claim your Social Security benefits and keep working they dock your Social Security benefits, like a tax. So if ever there were a disincentive to continue working …
MAESTAS: … that would, that would be it. Now you get it back later on, but hardly anybody knew that. So we still actually have a retirement earning test … at age 62 … Congress repealed the, the test after the full retirement age … which now is 66. So we kind of … we’ve, we’ve made progress on part of it. But we haven’t gotten rid of the front end part of the test. Which I would argue is actually …
HEFFNER: More important …
MAESTAS: … possibly even more important because once people leave the labor force … you know … they come back … if they come back … one it’s harder to get back in. And two if they come back in … they’re, they’re not likely to be back in at the level that they were at before in terms of hours of work, in terms of pay. You know, it’s in a different form.
HEFFNER: Well, that’s what puzzled me a bit about what you had written and your researches about un-retirement.
HEFFNER: Because you’re disadvantaged …
HEFFNER: … with un-retirement.
MAESTAS: That’s right.
HEFFNER: Ah, is there planning now for un-retirement, so it’s really not un-retirement it’s planning for?
MAESTAS: Yeah. Yeah. Well, I don’t know. Ahemm, you know … yes and no. Right. I mean so whether you … I guess whether you would consider it disadvantaged depends on your point of view. Ahem, you know if we just look at … let’s compare your, your hourly wage before you retire and after. Sure, you’re making less money … after … when you transition back into labor force …and there are a whole variety of reasons …
HEFFNER: Excuse me … is that because you’re “new” mostly?
MAESTAS: You’re new … if you … imagine you’ve changed, you’ve changed occupations …
MAESTAS: … you’ve even changed industry … you’ve certainly changed employers by and large … right.
HEFFNER: So you’re coming in closer to the bottom.
MAESTAS: Or … and differently. Differently. So you don’t have the tenure, you’re possibly … you know you don’t have the tenure in that position. In that position you don’t have, probably, the experience. You’re also in a less demanding job … this is, this is another part of what un-retirement delivers for people is stress alleviation … you know, a stepping out of the professional, managerial responsibilities, those demands and pressures into something less demanding, less pressured, perhaps less stressful.
It’s, it’s, it’s … there’s a trade-off there, right. You know, like people … there is a premium for, for a wage premium … a premium you’re paid for doing these more demanding, stressful positions. So when you give up some of that, you also give up that premium.
So, you know, it’s not clear from, from the individual’s welfare perspective if it’s necessarily a disadvantage. Because, of course, you know, this is something that’s typically chosen and desired, right? “I want to trade away some earnings in order to secure less … you know, a less stressful, less demanding, perhaps even more flexible position”.
HEFFNER: You really do put a lot of stress … forgive me … on stress.
MAESTAS: Yeah. I think that’s a big part of this.
HEFFNER: It’s identifiable.
HEFFNER: It’s articulated.
MAESTAS: Yeah. That’s right. Right.
HEFFNER: Well, you know given your emphasis on that, I think … I, I have a seminar at Rutgers … an advanced seminar … great kids … they’re juniors and seniors, usually … and at the end of each fall semester my wife and I have them over for dinner.
And I was fascinated last December by … now these were mostly seniors in this class … talking about the future, talking about what they were going to do upon graduation and the careers they were setting up for themselves …
HEFFNER: … and almost every one of them expressed a concern, an anxiety about “I’m opting for law school, or medical school or this or that …but suppose 30 years from now I want to change, I want to do something different or I don’t like this so much …
HEFFNER: … is there something being built into our psyches as a people that has to do with this notion of change?
MAESTAS: Right. Right. You do see this playing out … you see this … you can actually see this in the data.
So if you look at how long do people stay in a job before they move to a new job. Okay. So, you know, they may not be changing industries or whatnot, but already you see a, a shortening in the amount of time that people will actually stay in a single job. So, contrast that with, you know, the more traditional work at the same job for 30 years, collect your pension, retire completely and go play golf for the rest of you retirement years.
HEFFNER: Now, let me ask … was that traditional picture an accurate picture of what happened …
MAESTAS: Yes …
HEFFNER: … in “olden days” as my …
HEFFNER: … grandsons used to call it …
MAESTAS: I think … well, sure, sure. I mean it all depends on how far back we go. So, but … I would say “yes” for many people it was an accurate picture. You know in the, in the pretty recent past.
But you know, it’s not clear that that’s what people wanted, or if … I mean … there’s always this, this kind of this interaction, right between what employers can offer and will offer, what their demand for different types of labor is and what people actually desire. So, it’s … you know, I can’t say that, that the traditional retirement path was fulfilling for everybody who undertook it, but it certainly was, was the norm.
But that has been steadily changing. And we do see now that employers are starting to, starting to change as well and make those opportunities available. And the point about population aging is that the economic forces will now be propelling that along. That movement on the part of employers towards figuring out how to keep older workers engaged and on the job. Propelling that forward, making that even more and more likely.
HEFFNER: Are you saying that is what should be or that is what is? That there is this recognition and action taken on the basis of the recognition …
HEFFNER: Is that only theoretically what we should be doing?
MAESTAS: It’s both theoretically what we should be doing, but it is what is beginning to play out.
HEFFNER: At what level? At what level of, of employers do you find that? Are we talking about giant industries? Are we talking about the state as employer? Where do we find that?
MAESTAS: Well, you know … one industry where you see quite a bit of this is in the health care industry. So you’ve, you know … many more … you know we’re all familiar with nursing shortages, for example.
MAESTAS: So that industry has already kind of come to terms with, you know, a shortage in the available workforce and having to think creatively about how to attract as many, you know, new kinds of workers as they can.
And it does require a shift in many cases in the way employers organize work. A shift in often the productive … the very production processes that, you know, underlie whatever it is they do or sell.
HEFFNER: You mean that the nursing profession is looking to provide opportunities for different kinds of employment in the industry?
MAESTAS: MmmHmm. Yeah. Yeah. Yeah. I mean, so, you know, one example would be say … you know, older workers typically want flexible working hours …
MAESTAS: … or part-time working hours. So there aren’t a lot of, you know, historically there haven’t been a lot of industries or employers that really offer part-time positions in a significant way. There’s … you know, there’s always been some part time work in the US. But, but … you know, not, not a lot … yet this is what older workers want. When I have a situation in which now employers really need those older workers … so to attract them into the labor force, to get them to either come back in or stay longer or phase down slowly … they need to start changing the types of jobs to accommodate those desires.
HEFFNER: You say not only do they need, but they’re doing it?
MAESTAS: But they are, some are … that’s right. That’s right. So right now if you look … you know, if you look out at the landscape, you see it … you know, you see it here … you see it maybe over here … you see another example here … all kinds of employers in many different types of industries are on the vanguard of, of, you know, experimenting with new kinds of work arrangements.
Do we, you know, do we see it in the data right now. We’re only beginning to. And part of, part of what makes it hard to see, you know, so to call it sort of a trend that you can now pick up and see very clearly in the data that’s harder in part because of the great recession and that masking effect of kind of the current economic forces that, that obscure these longer run changes.
HEFFNER: But you seem also to be saying that it not only has the masking process taken place, but … I guess my question is … has there also been a step back from what was happening? I mean the, the, the use of flex-time …
HEFFNER: … has that taken a back seat because of the recession?
MAESTAS: Yeah. You know, I just can’t answer that question. I just, I just don’t know. My, you know, my guess is … my guess is that perhaps and perhaps in some places … you know part of it depends upon how retirees have … or how would-be retirees have reacted to the great recession.
And certainly, you know there are many people who have postponed retirement plans and, you know, kind of hunkered down … stay where they are longer … don’t, don’t … perhaps don’t rock the boat … right … keep you … keep the job you have. Wait a couple of years for things to settle down and then kind of resume course again.
I think once we have a little bit more distance on the great recession, you know, we’ll be able to look back at this period and probably see some of these … kind of a stalling effect of the recession on these trends.
But, but they’ll … they, they will emerge and get increasingly clear over time. And, and they already were before, before this, this crisis.
HEFFNER: Before this crisis would you have said there was a … we were talking about a 100 years to draw upon information … that the patterns go back … the changing patterns go back that far.
MAESTAS: Well, no. No, because really until about the mid-1990’s the pattern was the other direction …
HEFFNER: Yeah. Yeah.
MAESTAS: Right. So ….
HEFFNER: And traditional.
MAESTAS: It was really towards, you know, work … working … the rate of employment rates at older ages were declining. Until about the mid-1990s and then we saw this remarkable turnaround, all of a sudden the employment rate among men 65 and older kind of flattened out, starting increasing again.
It was really, really astounding because it had been declining for about a 100 years.
MAESTAS: Really about as far back as we can count and perhaps even longer. Yes.
HEFFNER: What do you anticipate then in terms of public policy changes. Are you optimistic that we’ll match those changes?
MAESTAS: I am … I am and part of why I’m optimistic is because the, the fiscal implications of not matching those changes, if you will, are pretty significant. So we’re talking about the financial position of Social Security , the financial position of Medicare …
HEFFNER: That again.
MAESTAS: That again.
HEFFNER: We’ll have to pick those up when we do our next program, which will be as soon as we finish this. So, thank you again for joining me today.
MAESTAS: You’re very welcome. Thank you.
HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time. Meanwhile, as an old friend used to say, “Good night and good luck.”
And do visit the Open Mind Website at thirteen.org/openmind to reprise this program online right now or to draw upon our Archive of 1,500 or so other Open Mind and related programs. That’s thirteen.org/openmind.