Jeff Baker is dead! A superb musician. Very sad. We move on. I recently read an interesting research paper – ‘The Retirement Boom’: Surge in Pandemic-Era Retirements and Implications for Future Workforce Participation – Published in the U.S. Federal Reserve Bank’s Financial Discussion Series (published November 2022), illustrating how the pandemic is changing the behavior of the U.S. labor market. America’s lessons apply everywhere, as governments increasingly ignore the reality that a dangerous virus is still among us and still wreaking havoc (death, long-term disability, etc.). For those who continue to claim that the pandemic is some kind of conspiracy to control us or that Covid is less dangerous than the flu or that wearing a mask is redundant and all the other nonsense that seems to be perpetrated by some leftists who think they are doing it for “Freedom” and those on the right who care only about profit, this type of research should ring alarm bells.
The chart below shows the U.S. labor force participation rate (ages 16 and over).
Clearly, there has been a prolonged decline since the global financial crisis, forcing many workers into early retirement.
The pandemic has also severely impacted participation rates, which remain well below the pre-pandemic level of about 63.3% recorded in February 2020.
As of December 2022, the overall participation rate is 62.3%.
In terms of numbers, based on the current working-age population, there is a difference of 1 percentage point, that is, 2.648 million workers (net) who left the labor market after the epidemic.
The second graph zooms in on the period January 2020 to December 2022 and extrapolates pre-pandemic trends to produce a “what-if” labor force participation series, based on the assumption that pre-pandemic trends continue indefinitely.
The solid line is the actual labor force (ie, the working-age population times the participation rate), and the dashed line is the simulated labor force based on the February 2020 actual working-age population and participation rate.
The gap between the solid and dashed lines is for workers who have left the labor force for some reason and are no longer active.
The question the Fed researchers are trying to answer is the relative importance of the different causes that explain this behavior.
The U.S. Census Bureau releases monthly updates from the Current Population Survey (CPS) – Basic Monthly CPS – This allows researchers to drill down into the micro data to find information that the usual Bureau of Labor Statistics monthly labor force survey data cannot reveal.
The Fed researchers sought to use these micro data to determine “the importance of retirement in making up this shortfall.”
They produced this chart (their Figure 1) showing the overall change and cause change in non-participation since February 2020.
You can see that by October 2022, the increase in the number of retirees accounts for all the changes that were not part of that date. Other causes declined or remained stable.
The researchers noted:
While factors other than retirement were significant contributors to the rise in non-participation early in the pandemic (e.g. non-participation in caregiving, orange line), the percentage of the population not in the labor force and retiring (“retirees”) share ”) steadily rising to nearly 11⁄2 percentage points above pre-pandemic levels by October 2022, implying more than 31⁄2 million more retirees, accounting for nearly all of the total LFPR shortfall.
The question is what is driving this major shift in retirement.
The researchers’ conclusions were not surprising:
…more than half of the increase in retirements appears to be a direct result of the pandemic.
It is clear that the proportion of retirees in the population is steadily increasing anyway due to “a shift in the age distribution of the population towards ages traditionally associated with higher proportions of retirement”.
What the US is experiencing, however, is a rate of “excess retirement,” which the researchers show in Figure 2 reproduced below.
The solid line is the share of retirees in the population, and the dashed line is the “counterfactual trend” that simulates the share of retirees “without the pandemic”.
If you’re curious about how they calculate counterfactual trends, you can read the paper itself. Basically, they assume that age-specific retirement shares from before the pandemic will continue, and then use these as weights to adjust for “actual changes in the age distribution” — a standard technique.
The difference between the two lines is a measure of “excess retirement,” higher than expected for the continuation of pre-pandemic behavior.
In the five years before the pandemic, the retirement rate rose by 0.2 percentage points per year.
But by October 2022, the share is “0.6 percentage points, or about 1.6 million people, above the expected trend before the pandemic.”
They concluded based on pre-pandemic (February 2020) trends:
…Since February 2020, the excess retiree population has increased by about 0.8 percentage points, or about 2.1 million people, as a share of the population.The increase in the total share of retirements since February 2020 explains slightly more than half of the 1.4 percentage point increase in the total share of retirements, while the remainder is explained by the increase in the share of expected retirements
So the question is why?
The researchers deployed a statistical model to further interrogate the data, and if you’re interested, you can read this paper to see what they did.
There are arguments against the econometric approach taken (ordinary least squares with time trends), but I suspect more sophisticated techniques would yield drastically different results.
Factors that appear to be driving excessive retirement behavior are:
1. Retirement rates change inversely with unemployment rates — so during recessions, people tend to spend less time in retirement.
2. The ratio of social security pension availability and benefits to full retirement benefits to actual benefits (reflecting retirement age) is positively related to retirement. Therefore, if the ratio is high (i.e., a person expects to receive full retirement age benefits), then all else being equal, retirement is more likely.
3. For those over 50, age is clearly a positive factor.
In terms of interpretation, the researchers suggest the following:
1. Impact of Covid infection rates – here they show that older workers suffer more severe consequences from Covid infection, many are unable to work anymore, or others are “more likely to adjust their behavior to avoid reinfection” .
There is solid evidence to support this conclusion.
In addition, many older workers who are not sick are more likely than younger workers to take steps to avoid dangerous situations, such as in the workplace.
2. There is a strong link between recorded absenteeism due to COVID-19 and retirement of older workers.
3. Non-disease causes suggest that “the sharp increase in layoffs early in the pandemic may have had more persistent effects on labor force participation of older workers approaching retirement age”.
Older workers have had a much harder time getting back into employment after being laid off early in the pandemic. Instead of remaining unemployed, these workers who had access to pensions (or most of the expected maximum pensions) saw retirement as a better option.
4. The increase in real estate wealth before the pandemic provided older workers with greater flexibility to retire.
The implications of this study are many, but from my point of view the interesting point is that unless the threat of Covid recedes and it becomes a non-dangerous disease with little to no incidence of ‘long-term Covid’, prompting older workers to retire prematurely factors will start to gradually reduce the age distribution.
The researchers noted:
…if the situation with COVID-19 does not improve further, and many expect continued high and disturbing levels of transmission, younger cohorts may start retiring earlier than normal pre-pandemic ages, with early retirement of people may return to the labor market.
Offsetting this possibility is “increasing acceptance of remote working arrangements in certain industries”, allowing some workers to continue working while minimizing the risk of contracting Covid.
in conclusion
While the rhetoric from governments, businesses, and “liberal” commentators seems to be that the pandemic is over, or that it was never a big deal, and is played by people who want to control us or some other bullshit, serious Research evidence suggests a different story.
Ultimately, people’s actions tell us that disease and death are real, and change perceptions and behaviors.
One of the many manifestations that we can now explain, given the newer data, is excessive retirement behavior as older workers try to protect themselves from infection, or become sick and unable to continue working.
Data is the reality here.
Not some conspiracy hysteria.
ps: don’t bother to write to me saying I’m an idiot, take the pandemic seriously. I’ve gotten 100s of these emails.
Enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
