Number of the Week: 1.6 Million Put Off Retirement

Real Time Economics

from The Wall Street Journal By Mark Whitehouse

1.6 million: The number of older Americans  in the labor force as a result of the financial crisis.

The financial crisis has been hard on just about everyone. But for older folks, the pain is proving particularly deep and lasting — a problem that could put a drag on the economy for many years to come.

People approaching retirement age are suffering on all fronts. Even with the Dow above 11,000, their stock holdings are worth less than they were back in 2006. Fixed-income investments hardly provide any income. Home prices remain depressed.

As a result, more older people are trying to make up lost ground by staying at work longer or rejoining the labor force – precisely at a time when finding a job is exceedingly difficult.

In a new paper, two economists at the Chicago Fed — Eric French and David Benson — estimate that the labor-participation rate among people 51 to 65 years old is 2.9% higher as a result of their financial losses alone. That’s about an added 1.6 million people staying in jobs or looking for work.

In most states of the world, anything that motivates more people to work would be beneficial for the economy. Older folks have valuable skills and experience, and their participation increases the nation’s potential to produce goods and services.

But at a time when the economy is already running far below its potential, the added labor supply serves to boost the unemployment rate, as more people compete for scarce jobs. Since August, the unemployment rate for people 55 and older has averaged 7.3%, the highest level since at least 1948.

Meanwhile, if people can’t rebuild their retirement nest eggs, they’ll have to cut back on spending in old age more than they already do. That’s a problem for companies hoping to sell them everything from health care to cars. And if more of an aging population winds up relying on the state for support, that doesn’t bode well for the government’s efforts to get its long-term finances back in order.