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Longer,Healthier,Happier:HowWorkingLongerImprovesAlmostEverything

LaurenceB.SiegelandStephenC.Sexauer

February2018Wearealllivinglonger,everywhereintheworld,andthechangeisdramaticandrelativelyrecent.Yetweworkforonly30to40yearsofwhatcaneasilybeacentury-longlife.Forthefirsttimeinhumanhistory,peoplearetryingtostretchtheincomefromarelativelyshortworkinglifeoveramuchlongerperiod,potentially60to80yearsofadulthood–nowonderpeoplearehavingtroublesavingenoughmoneytoretire!Thekeytosolvingthisproblemisworkinglonger.Muchofthecurrentretirement“crisis”isthuscompletelypredictable,andhasnothingtodowithlowmarketreturnsorpensionfundmismanagement.1Itissimplyanartifactofincreasedlongevity.Workingfor30or40yearsofadulthood,topayfor60or80yearsofadultliving,isnotasustainablestrategy.(Thisignoresthefirst20years,paidforbyparents.)Mostpeoplejustdon’tproduceenoughin30yearstofinancethebetterpartofacentury’sconsumption.Theimplicationsarestraightforward:Aslongevityincreases,wemustsavemore,consumelessinretirement,orworklonger.Forcingpeopletosavemoreistough,andisantitheticaltotheprinciplesthatunderpinaliberaldemocracy.Consuminglessisanoption,butnotanattractiveoreasyone.Butchangingtheinstitutionalconstraintsandincentivessothatpeoplevoluntarilyworklongerandbenefitfromthatworkisbothdoableandconsistentwithliberalideals.Werealizethatsomepeoplecannotworkforhealthreasons,andsomehatetheirwork.Butaverylargenumberofpeoplefacingretirementwouldliketoworklonger,especiallyiftheworkwereeasierorlesstime-consuming;theywouldsettleforlowerpay,whichismuchbetterthannopay.Plus,thereisevidencethatworkbringsconnections,purpose,andchallenge,andthesecanbringbetterhealthandhappiness.It’sclearthatthechiefreasonspeopledonotworkbeyondtheconventionalretirementagearethelegal,regulatory,cultural,andbehavioralconstraintsthathavebeenerected.Ifwecanremovesomeofthese,allowingpeoplebetteraccesstottheirownhumancapital,theycanachieveafullyfundedretirementthatcanbelonger,happier,andhealthier.1Orlowliabilitydiscountrates,theflipsideoflowmarket(especiallyfixed-incomemarket)returns.2Medicareisatoughernuttocrackbecauseyoucancollectitatage65whetheryou’reaworkeroraretiree;theadditionaltaxrevenuefrompeopleworkinglongerisaminorbenefit.

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RoadmapWeframetheproblembynotingthatmostpeoplewouldratherberich,healthy,andhappythanpoor,sick,andtiredintheirlateryears.Inthefirstsection,entitledHowWeGotHere,welayoutsomebasicsoflifecycleeconomicsandnotethattherelativeshortageofolderworkersintheeconomycanbetracedtoasetofgenerallywell-meaninglaws,regulations,andpractices.ThesectioncalledPoor,Sick,andTireddocumentstheneedthatmanyolderpeoplehaveformoremoneyandaddressestwocommonobjectionstoworkinglonger:poorhealth(Sick)andthedesireforleisure(Tired).Theselatterconcernsarelongstandingandreal,andtheymeritbeingacknowledgedanddiscussed.Wenotethat“healthspan”islikelytoimprovejustaslifespanhasalreadyimproved,andthatworkisgettingeasier.AnotherobjectionisTheFrenchProblem,themistakenideathatthereisashortageofworkorthatthesupplyofjobsisfixed,sothatemployinganolderpersonmeansdenyingajobtoayoungerone.Wethenconnectworkinglongertoricher,healthier,andhappieroutcomes.Richer(private)showstheimprovementinretirementpreparednessthatcomesfromadditionalyearsofwork,andincludesasimulationthatquantifiesthisimprovement.Richer(public)illustratesthecorrespondingimprovementinpublicfinance,particularlyasitaffectsSocialSecurity.2Healthierpresentsevidencethatworkingpeopleenjoybetterhealth.Happier,morespeculativebecausenoonereallyknowshowtomeasurehappiness,proposesthatworkingpeoplealsoenjoylifemore.Aseconomists,whenweobserveamarketpricethatwedonotunderstand,inthiscasezeroforthelaborofalargegroupofindividuals,wearetrainedtolookforthenon-marketforces–laws,regulations,taxes,andtraditions–thatexplaintheprice.Inthepresentcase,thesecaneasilybeidentified,andwithsomeefforttheycanbechanged.Weconcludewiththreestraightforwardchangesthathavelowcostsandcanleadtoricher,happier,andhealthierretirements.Thesechangesare:

• Safeharborsinthelaborlaws,makingitpossibletonegotiateflexibleemploymentforworkersover65whowanttowork;

• Federal(ascontrastedwithstate)insurancechartersforthesaleofannuitiesandhealthinsurance;and,

2Medicareisatoughernuttocrackbecauseyoucancollectitatage65whetheryou’reaworkeroraretiree;theadditionaltaxrevenuefrompeopleworkinglongerisaminorbenefit.

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• Expandingthecurrentweb-basedSocialSecurityCalculatortoincludetheannuitycalculationsinthispapersothatpeoplehavethetoolstoplantoconverttheirretirementsavingsintoretirementincome.3

Wethinkthechallengeofgettingpeopletoworklongerislargelyalegalandregulatoryproblem.Forexample,inouremploymentsystem,addingaworkerofteninvolvessuchhighfixedcosts(becauseofsearchcosts,mandatedbenefits,thedifficultyofterminatingworkers,andsoforth)thatemployersminimizethenumberofworkersandexpecteachworkertoworkveryhard.Thisresultissuboptimalformanypeople,especiallyolderones.LucileBiondiisquotedinaNewYorkTimesarticleassaying,“Iliketowork.Ifajobwasopen,Iwouldgobackrightnowandapplyforajob.At93,Iwouldasktowork3hoursaday.”4Alongwiththegainstotheindividualfromworkinglonger,therearelargegainstothepublic.Therearenolosers.Let’smaketheneededchanges,notonlyforthesakeofolderpeoplewhowouldliketowork,butforthebenefitofallofsociety.Howwegothere SomebasiclifecycleeconomicsLifecycleeconomics,whichowesitsorigintotheNobelPrize-winningUniversityofChicagoeconomistGaryBecker,observesthathumancapitalisanassetownedbyeveryhumanbeingindependentofanyotherphysicalorfinancialassetstheymayhave.5Humancapitalistheabilitytoproduceusefulgoodsorservicesandisproxiednumericallybythepresentvalueofaperson’sfuturelaborincome.Exhibit1showstheevolutionofahypotheticalU.S.collegegraduate’sstockofhumancapitaloverherlifetime,alongwithhercurrent(annual)earnings.Thestockisthepresentvalueofexpectedfutureearnings.Forsuchanindividual,humancapitalisbuiltupearlyinlifethrougheducationandexperience,growsforawhilelonger,thenbeginstodepreciateinmiddleage–eventhoughannualincomecontinuestorise–anddisappearsatdeath.6

3ThedetailsofthesecalculationscanbefoundinWaringandSiegel(2016],SexauerandSiegel[2013],andSexauer,Peskin,Cassidy[2012}.4“FromtheElders:CanYouHearMeNow?”NewYorkTimes,SundayTimes.March5,2017,https://www.nytimes.com/2017/03/03/business/retirement/millennials-ask-elders-about-retirement.html5Becker,GaryS.1993.HumanCapital:ATheoreticalandEmpiricalAnalysis,withSpecialReferencetoEducation.Thirdedition.Chicago:UniversityofChicagoPress.JacobMincer(thefirstauthorthatIknowoftousethephrase“humancapital”)andTheodoreSchultzwereamongBecker’sinfluences.6Thecurveisdifferentforanunskilledworker,whoseincomeislikelytopeakmuchyounger.

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Exhibit1StylizedincomeandhumancapitalcurvesforaU.S.collegegraduate,constantdollars,3%realdiscountrate

Note:Inthissimulation,one-quarterofpeakhumancapitalispresentatbirthandtherestisacquiredevenlyoverthefirst22yearsoflife.Workersbegintowithdrawfromlaborforceatage62,butdosogradually.Late-ageincomesreflectlowerprobabilityofbeingaliveaswellaslowerincomesconditionalonbeingalive.Source:Constructedbytheauthors.

Humancapitalisawastingasset,onethatgraduallydisappearssimplybyvirtueofthepassageoftime.Ifaworkerstopsworkingforpayat,say,age62,thehumancapitalthatsheownsatthatageislostandcannotberecovered(orcanonlybepartlyrecoveredbystartingworkagainatalaterage).Therearemanyworthwhileunpaidpursuits,buttheydonotaddtoone’spossiblyinadequateretirementbalance,nordotheycontributetotaxreceipts.Mostpeopleneedtogetasmuchaccesstotheirhumancapitalastheycan.Oursimulationsoftheimprovementinpost-retirementlivingstandardsenabledbyworkinglonger,presentedlaterinthisarticle,arebasedonasimilar–butnotidentical–humancapitalmodel.Totieinwithourpreviouswork,theprototypeworkerinoursimulationsisaColumbus,Ohiopublicschoolteacher,whohasalittlelessearningpotentialthanthegenericcollegegraduateinFigure1.Butthesameprinciplesapply.

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1 5 9 13172125293337414549535761656973778185

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Workinglongerbecausewe’relivinglonger:Allofus,everywhereThemostbasicreasonforworkinglongeristhatwearelivinglonger.Exhibit2showslifeexpectancyoveralongsliceofU.S.history,andExhibit3showslifeexpectancybycontinent,atarougherlevelofapproximation,overanevenlongerperiod.

Exhibit2U.S.lifeexpectancy,bothsexes,1900-2011

Exhibit3Lifeexpectancygloballyandbyworldregionssince1770

Source:OurWorldInData.org

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Addverticallinesfor:Bismarck,AXP,andSocialSecurity,andinaseparatecolorforthefirstandsecondIndustrialrevolutionandantibiotics.

BalancinglifetimeproductionandconsumptionWeneedtosave,notjustuptoourlifeexpectancy,buttoprovideforthe“longtail”–thelongesttimeperiodwecanreasonablyexpecttolive.Otherwisewe’llrunoutofmoneyintheevent(whichhasa50%probability)thatwelivelongerthanexpected.Thisriskcanbemitigatedthroughlongevity-risksharing,thatis,bypurchasingannuities,buttodaymostpeopledon’tannuitize,althoughtherearegreatgainstodoingso.Theytrytofinance80yearsofadultlife,roughlyage20through100,with35or40yearsofwork.Aswesaidattheoutset,nowondertheyarehavingdifficultyretiring!Theyneedtoworklongertobalancetheirownproductionandconsumption.Ourancestors,iftheywereluckyenoughtolivelongenoughtoretire,didn’tfacesuchadauntingpicture.Forexample,in1935,whentheSocialSecurityActwaspassed,U.S.lifeexpectancywasonly62.Thisdidn’tmeanthatwhenyouretiredat65youwerealreadydead;lifeexpectancyconditionalonbeingaliveat65was12yearsinthe1930s,andnowit’s17years.7Thisincreaseislessthanmanypeoplenaivelyguess,butit’sstilllargeenoughtoupsetthebalancebetweenSocialSecuritytaxescollectedandbenefitspaidout,andit’slargeenoughtodefeattheexpectationofanearlyandprosperousretirementforagreatmanypeople.RobertArnottandAnneCascells,apairoffinancialeconomistsandinvestmentmanagers,havecalculatedthat,togetthesameratioofretireestoactiveworkerstodaythatwehadin1935,wewouldneedaretirementageof73.8Thisisalittlecounterintuitivebecause,conditionalonreaching65,weareonlylivingfiveyearslongeronaveragethanwedidbackthen.Thereareseveralreasonsweneedeightadditionalyearsofwork,insteadoffive,tomakeSocialSecurityactuariallysound.First,unlikein1935,almosteveryoneislivinglongenoughtocollectSocialSecurity;fewpeoplearepayingintothesystemandthendyingbeforecollecting.Second,theoldestpeoplearelivingfarlongerthantheyusedto,givingtheSocialSecurityliabilityitsownlongtail.Third,attheotherendoftheagespectrum,Americans(andothersaroundtheworld)arehavingfewerchildren.Finally,therearemorewomenintheworkforce,andwomenlivelonger. Whypeopledon’tworklonger[Stevetowrite]

7https://www.ssa.gov/history/lifeexpect.html8Arnott,RobertD.,andAnneCasscells.2003.“DemographicsandCapitalMarketsReturns,”FinancialAnalystsJournal,Vol.59,No.2(March/April).

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Sowhyhaven’tworkersalreadyfiguredthisoutandarrangedforthemselvestoworklongerintowhatistraditionallyretirementage?Laws,regulations,taxes,traditions[includesomestories]Poor,sick,andtired

Poor:“Iwillneverbeabletoretire”AreAmericansfinanciallypreparedforretirement?AccordingtotheEmployeeBenefitResearchInstitute,52%ofworkerssaytheyare“veryconfident”or“somewhatconfident”thattheywillhaveenoughmoneytolivecomfortablyintheirretirementyears.9(Self-reportedconfidenceisnotanaccuratemeasureofretirementpreparedness,butit’sahint,andretireesreportmoreconfidencethanworking-agesurveyrespondents,suggestingthattheconfidenceisnotentirelymisplaced.)Whilethat’sahealthychunkofthepopulation,thesurveyresultsmeanthatabouthalfthepopulationiseitherunnecessarilyworriedor,morelikely,theyknowfullwellthattheywon’tbefinanciallyprepared.Measuresofactualfinancialpositionshowaworsepicture,withworkersaged56to61havinganaveragesavingsbalanceof$163,577accordingtotheEconomicPolicyInstitute.10That’senoughtobuy(atage65)amonthlyannuityof$913,11alittlemorethanbeermoneybutnotenoughtorentarespectableapartment.Yetifthisdatumisnotbadenough,itmaskshugevariationaroundtheaverage.Agreatmanypeoplehavesavednothingoralmostnothing;theaverageispulledupbythemillionaires.(About13millionAmericans,manyofthemclosetoretirementageoralreadyretired,liveinmillionairehouseholds.)Themedianretirementaccountsavingsbalance,forthoseaged56-61,isastunninglylow$17,000.Thisbuysamonthlyannuityof$95.Beermoney.Exhibit4showsthefulldistributionofretirementsavingslevelsatagesclosetoretirement,basedonaGovernmentAccountabilityOfficeanalysisofSurveyofConsumerFinancesdata.Some61%ofthepopulationatthatagehaslessthan$50,000saved–andtheyareabouttoretire!Fortunatelyalmostallofthem

9https://www.ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdf10https://www.cnbc.com/2017/04/07/how-much-the-average-family-has-saved-for-retirement-at-every-age.html,dataasof2013;themarketisupsincethen,sothenumberisahighernow,butstilllikelytobewoefullyinadequateconsideringthewaythataveragesavingsbalancesarealwaysdominatedbyafewsuper-savers.11http://www.immediateannuities.com,forprincipalvalueof$163,577,maleage65inIllinois,singlebeneficiarywithnoperiodcertain,quotedasofJanuary30,2017.

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willcollectSocialSecurity,whichpaysasurvivableincometomostbeneficiaries.Ifyou’vepaidinthemaximumorclosetoit(notjustthemaximumnumberofyearsbutalsothemaximumannualamount),thebenefitwillbemuchbetter.Butmostwould-beretireescan’tliveontheirSocialSecuritybenefit,don’thaveadefined-benefitpensionplan,andwilldependontheirownindividualsavings–includingdefinedcontribution-typeretirementaccountssuchasIRAsand401k’s–forincome.Ifthey’veonlysaved$17,000,oreven$163,577,they’rerelativelypoor. Exhibit4

Source:Ilmanen,Kabiller,Siegel,andSullivan[2017]

Thesepeopleneedtoworklongerbecausetheyneedthemoney.Andtheyneedtosavealargefractionofwhattheyearn.Isthisacrisis?Expertsdifferonthisquestion.AdiscussionbetweenAndrewBiggs,residentscholaratthenonprofitAmericanEnterpriseInstitute,andAliciaMunnell,professoratBostonCollegeanddirectorofitsCenterforRetirementResearch,revealstherift.12Munnellsays…Biggssays…

Whetherthosewithlittleornosavingscanretiredependsonthecircumstancesofeachhousehold.Sometakepart-timejobs.Somemoveinwiththeirkids(orhavetheirincome-generatingkidsmoveinwiththem).Somelivein–ormoveto–low-costareaswhereSocialSecurityprovidesalivableincome.Somecanselltheirhousesandbankaniceprofit.Othersmaybeindeeptrouble.Atanyrate,peopledoretire,andnotallofthemaremillionairesordefined-benefitpensionbeneficiaries.Theymakeadjustments,someofthemuncomfortable.Afewpeoplesaytheywillhavetoworkuntiltheydie;feweractuallydo.

12Tergesen,Anne.2017.“IsThereReallyaRetirement-SavingsCrisis?”TheWallStreetJournal(April23).

Exhibit 4 ‒ Retirement Savings Levels in U.S. Are Disturbingly Low

Distribution of Retirement Savings Amounts among Households Age 55–64, as of 2013

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Despitethesemelioratingcircumstances,we’reinclinedtobelievethat,whensomethingcloseto50%ofthepopulationwillhavedifficultyretiringatanythingliketheirpre-retirementstandardofliving,it’sacrisis.Itisnottheworstcatastropheimaginable,byandlargeitcanbefixed,andpreviousgenerationsofpoorlypreparedretireeshavefoundwaystomanage.Butactionisneeded.Aswesaidearlier,we’vebuiltawalloflaws,regulations,taxes,andtraditionsthatkeepthemfromworkingaftertheirmid-sixties,oratleastfromworkingunderreasonableconditionsatacceptablelevelsofafter-taxpay.Forthedoctors,accountants,salesmen,andhardwarestoreownerswho’vealreadyfiguredouthowtoworklonger,itmaybealuxury,awayofstavingoffboredom,oranexerciseinself-fulfillment;butforpeopleinmanyotherwalksoflifeit’sanecessity.Let’sbegintoteardownthewall.Inthelastsectionofthisessay,wemakesomespecificsuggestionsfordoingso.

Sick:“Ican’twork”

Oneofthechiefreasonsforretiringispoorhealth.MichaelInsler,aU.S.NavalAcademyprofessor,writes,“Youngretirees(ages50–60)generallyhaveexceptionallypoorhealth,suggestingthattheirearlyexitsfromthelaborforcemaybeduetosevereillnessesorinjuries.”13Otherresearchershaveconfirmedastrongconnectionbetweenpoorhealthandthedecisiontoretireearly.

Showsomedataonmorbidityanddisability.[Larrytowrite] HealthspanWhilewearelivinglongerthaneverbefore,ourlivesarenotuniformlyhealthier.Somehealthindicators,suchasbloodpressureandcholesterol,haveimprovedgreatly,whileothers,includingobesityandphysicalandmentaldisabilities,havenotandmayactuallybedeteriorating.Thissituationmayimprove.Publichealthresearchershavecoinedtheterm“healthspan”todenotethepartoflifeduringwhichonefeelsgoodandisabletobeproductive,and,awareofthecostandpainofdecrepitude,aretryingtobendthediscussionfrommaximizinglifespantomaximizinghealthspan.EileenCrimmins,agerontologistanddemographer,writes,14“Thereareanumberofsignsinthepopulationdatathatwemaybeatthebeginningofthecenturyofimprovinghealthspan,notjustlifespan”(p.909).Ifthatisthecase,itaugurswellforlonger

13Insler,Michael.2014.“TheHealthConsequencesofRetirement.”JournalofHumanResources,Volume49,Number1(Winter),pp.195-233.14Crimmins,EileenM.2015.“LifespanandHealthspan:Past,Present,andPromise.”TheGerontologist,Vol.55,No.6,pp.901–911.

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andmoreproductiveworklives,andbolsterstheargumentforremovingobstaclestosuchemployment.

Tired:“Ihatemywork”AccordingtoaGalluppoll,“analarming70%ofthosesurveyed…eitherhatetheirjobsorarecompletelydisengaged.”15Thatmakesagoodheadline,andmaybeit’strue.Butthere’sadifferencebetweenhatingyourjobandhatingyourwork.Valuable,interestingworkcanbemadeodiousbyabadboss,unfairlaborpractices,too-longhours,oramismatchbetweenemployeeskillsandjobdemands.Fortunately,bythetimeworkersgettoretirementage,thematchbetweenskillsandjobrequirementsisprobablybetterthanitisatyoungerages.Thereallybadmatcheshavebeenweededout,andwe’dliketothinkmostpeoplehavefoundsomethingthey’regoodat.Still,we’reverymuchawarethatsomepeoplegotoworkbecausetheyhavetoandliveforthedaytheycanaffordtoretire.Ifyouhateyourwork,don’tdoit.If,ontheotherhand,yourworkis(actuallyorpotentially)satisfyingbutthejobisstructuredpoorly,itcanberestructured.Thereareprobablyotheremployersinthesamefield;toomanyemployeeshavebecomeconvincedthattheycannevergetanotherjobwhenthatisnotthecase.Oryoucanchangecareers,probablyloweringyourpaybutkeepingyouintheworkforce,producingandsaving. WorkisgettingeasierIfit’sanyconsolation,workisgettingeasier.Exhibit5showsthechangingmixofjobssince1983,classifiedby“cognitive”versus“manual”androutineversusnon-routine.

15http://www.nydailynews.com/news/national/70-u-s-workers-hate-job-poll-article-1.1381297

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Exhibit5 ChangingMixofJobs,1983-2014

Source:http://www.economist.com/news/special-report/21700758-will-smarter-machines-cause-mass-unemployment-automation-and-anxiety

Agricultureandbasicindustriesinvolveagreatdealofroutinemanuallabor,oftenrequiringbackbreakingworkthatpeopleover50canrarelydo.Theseemploymentcategorieshavedramaticallydecreasedinmarketshare,ashasmanufacturing,whichcanbephysicallydemanding.Professional,managerial,financial,technical,andhealthcarejobs,mostlycognitiveandmostlynon-routine,havelargelyreplacedtheold-fashionedtoughjobcategories.Workhasalsogotteneasierwithinindustrialcategories.Thisisgoodnewsifyou’resmart,andifyoucannotorwouldprefernottoliftheavyobjectsorfacephysicaldanger.Olderworkerswhohavehighcognitiveabilityshouldthriveinthisnew,moreautomatedenvironment;thosewithlesscognitiveabilitymaystruggle.Thistrendwillnotonlycontinuebutaccelerate.Roboticsandotherformsofautomationwilleliminatetheworstjobsfirst.Whileweareconcernedabouttheeffectsofthistrendontheunskilled,eliminatingtoughjobsisasalutarychangeifwewantpeopletoworklonger.

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TheFrenchproblemOneofthemostcommonlyheardobjectionstopeopleworkinglongeristhatitwilldeprivetheyoungofachancetogetstartedinacareer.InFrance,youngpeoplearesaidtobewaitingforanolderworkertodiesotheycantakehisplace.16Thisviewregardsthesupplyofjobsasfixed,whichit’snot.We’llgettothismisconceptioninamoment.Fornow,we’dpointoutthatifasocietyproducesmore,itcanconsumemore.Theonlyquestionishowthefundsfromtheproductionaredistributed.Evenifcurrenttaxpolicydoesn’tchange,partofthegainfromemployingolderworkerswillberedistributedtotheyoung.ThisisbecausetheyoungbeartheburdenoftheSocialSecurityandMedicareshortfall,whichwillbemadeupbyfuturetaxes.Iftheyoungreceiveataxcut,relativetowhattheywouldotherwisehavetopaytosupporttheirelders,theyhavebenefited.Moreover,theyoungmaybeabletosellmoregoodsandservicestoolderworkersoncethoseworkershavemoremoney.Thisisthedirecteffectofproducingmore.Now,let’saddressthesupposedlyfixedsupplyofjobs.Inaprovocativearticlecalled“WhyAreThereStillSoManyJobs?”theMITprofessorDavidAutorargues:

Tasksthatcannotbesubstitutedbyautomationaregenerallycomplementedbyit.Mostworkprocessesdrawuponamultifacetedsetofinputs:laborandcapital;brainsandbrawn;creativityandroterepetition;technicalmasteryandintuitivejudgment;perspirationandinspiration;adherencetorulesandjudiciousapplicationofdiscretion.Typically,theseinputseachplayessentialroles;thatis,improvementsinonedonotobviatetheneedfortheother.Ifso,productivityimprovementsinonesetoftasksalmostnecessarilyincreasetheeconomicvalueoftheremainingtasks.17

Inotherwords,technologicaladvancescreatedemandfornewtypesofhumancapital.Takebanktellersforexample.TheATMappearedtoreducetheneedforbanktellers,but,asAutorpointsout,ATMsalsomadeitcheaptoexpandthenumberofbranchbanks.SotheintroductionoftheATMactuallyincreasedthenumberofbank-tellerjobs,whichevolvedfromtheroutinetaskofcountingcashtosomethingmorelikeasalesposition.Inthe30-yearperiodafterATMswerefirst

16ThechiefreasonforthisisprobablytherigidityoftheFrenchlabormarket.Sinceacompanywhohiresapermanent,full-timeemployeewillprobablyhavetopayhimasalaryorpensionfortherestofhisorherlife,theydon’thirehim.17Autor,DavidH.2015.“WhyAreThereStillSoManyJobs?TheHistoryandFutureofWorkplaceAutomation.”JournalofEconomicPerspectives,Vol.29,no.3(Summer),pp.3–30.

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installed,andwiththestockofATMsrisingfromzeroto400,000,theU.S.economyadded50,000banktellerjobs.Autor,theassociateheadoftheMITeconomicsdepartment,isnotwayoutthereonthefringeofeconomicthinking.Heisaboutasmainstreamasyoucanget,andmanyothereconomistscorroboratehisview.Thesupplyofjobsisnotfixedandtechnologyneednoteithercreateordestroyjobs;itdependsoncircumstances,butoverlongperiodsoftimemanymorejobshavebeencreatedthandestroyed.EverytechnologicalchangesincetheIndustrialRevolutionhasbeenaccompaniedbyforecastsofmassunemployment.ItallstartedwiththelegendaryNedLudd,whosmashedweavingmachinesinEnglandbecausetheywereputtinghandweaversoutofwork.Itcontinueswithtoday’scallforuniversalbasicincome,groundedinthefearoffurtherautomation(wehavealreadyhadplenty).Exhibit6showswhathashappened,startingin1890becausewedon’thavegreatdataforearlieryears: Exhibit6 U.S.UnemploymentRates,1890-2009[updateto2017]

Source:WikimediaCommons,https://commons.wikimedia.org/wiki/File:US_Unemployment_1890-2009.gif.

Injustabouteveryeconomicexpansion,unemploymentbottomedoutaround4%—andthisoccurredwhilethepopulationwasgrowingtremendously.18TheU.S.populationgrewfivefold,from63millionto320million,between1890and2015.

18Admittedly,thelaborforceparticipationratevaries,sothattrueemployment(includingthosewhohavegivenuplookingforworkormadethelong-termchoicetoworkintheunpaidsector,forexampleashomemakers)maynotalwaysconvergeto4%.

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So,withallthedisruptionthathasoccurredinthelast125years,thenumberofjobshasexpandedbyroughlyafactoroffive.NedLuddwasaterribleforecaster!Richer–theprivatesphereUsingthelifecycleincome/wealthsimulationsetupearlier,showtheimpactofanextra5yearsofworkathalfpayonretirementincomereplacementratio.Factorinbenefitfromwaitingtoage70totakeSS.Calculatethe“beta,”orchangeinretirementincomeperunitofchangeinyearsworked.Therearefourfinancialbenefitsfromworkinglonger:

1. IncreasedSSpayout(toage70).Thisissupposedtobeanactuariallyfairtradeoff,moremoneyperyearinexchangeforfeweryears,butit’snot.Itworksinfavorofretiringlater,becausethetradeoffdoesnotreflectrecentincreasesinlifeexpectancy,andbecausethosewhoworktoage70aremorelikelytosurvivetotheolderageswherethelargerSScheckreallypaysoff,forself-selectionreasonsand(morespeculatively)becauseworkingenhanceslongevity.

2. Newsavingsfromtheadditionalpaychecks3. Moreyearsforexistingsavingstocompoundinthemarket4. Feweryearsofretirementtopayfor

Thislastpointisoftenoverlooked.Ifyouexpecttolivetoage86,that’s24yearsofretirementifyouretireatage62butonly16yearsifyouretireatage70.Ignoringanyadditionalmoneyyousaveoverthoseeightyearsandalsoignoringinvestmentreturn,that’sa50%boostinyourpost-retirementstandardofliving.(Realityismorecomplicatedthanthatbecauseyouneedtohedgemortalityrisk,butwe’retryingtoseparatealltheeffectscleanly.)Inaddition,there’spotentiallyahigherstandardoflivingfromworkinglongerthanyouwouldenjoyifyouspentthesameyearsretired.[Larrytofinish]Richer–thepublicsphereShowimpactofextraworkonSS,Medicare,andpensionsystemsolvencyMentionlowlaborparticipationrate,especiallyamongmenandamongthelatemiddle-aged.(LarryorSteve)Healthier[Larrywillwritethis]Happier[Larrywilltrytowritethis]

ROUGHDRAFT–FORPERSONALUSEONLY

Copyright©2019LaurenceB.SiegelandStephenC.Sexauer.Allrightsreserved.Notforquotation,attribution,orreproduction.

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Tearingdownthewalloflaws,regulations,taxes,andtraditions..tohelpcreateamoreproductive,prosperous,andpleasantsociety.[Stevetowrite;safeharbor/Barbara’scomments]Conclusion:TheFace-OffHumancapitalistheworld’smostvaluableasset,difficulttoacquireandchallengingtopreserve.Yetwearewastingalotofitbecausemanycapableolderpeopledon’tworkforpay.Whilesomepeoplecannotwork,moreoftenit’samatterofnotbeingabletofindsuitablework–part-time,seasonal,physicallyeasier,orinanactivitydifferentfromone’smid-careertradeorprofession.Meanwhile,wehavearetirementpreparednesscrisis.TheaverageAmericanisretiring,ortryingto,withasavingsbalance–includingdefinedcontributionplans–ofsomethinglike$163,000;andthat’stheaverage,whichincludesthewell-off.Themedianisaround$17,000,andhalfarebeloweventhatmiserlynumber.AgreatmanypeoplewillretireonSocialSecurityandnothing,oralmostnothing,more.Itisn’toftenthattworelatedproblemsstareeachotherinthefacelikethis.Theobvioussolution,withlargepotentialgainsonallsides,istotrade.Thetradeisbetweenolderworkers,whomaywanttoworklongertoimprovetheirownsituations,theemployerswhowanttheworkdone,andtherestofsociety,whichgetspartofthebenefit.Asonemightexpectwithavoluntarytrade,eachpartywins.Ifagoodlynumberofpeopleworklonger,then,theywillnotonlyreappersonalbenefits;becausetheypaymoreintaxesandhavefewerneeds,theretirementcrisiswillbegintofade.Andthereisyetanotherbenefit:olderworkerscontributewisdom,accumulatedknowledge,andinstitutionalmemorytotheiremployersandtotheiremployers’customers.Thiscontributestoeconomicgrowth.Thechiefreasonthatolderworkersremovethemselvesfromtheworkforce,orareremovedinvoluntarily,isthewallofbarriersthathavebeenerected,mostlyoutofgoodintentionsbutwithlittlevisionregardingtheconsequences,toworkinglonger.Forthesakeofboththeworkersandofsocietymorebroadly,let’sbegintoteardownthiswall.