Longer, Healthier, Happier: How Working Longer Improves Almost … · 2019-03-01 · century-long...
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ROUGH DRAFT – FOR PERSONAL USE ONLY Comments welcome at [email protected] Copyright © 2019 Laurence B. Siegel and Stephen C. Sexauer. All rights reserved. Not for quotation, attribution, or reproduction. Longer, Healthier, Happier: How Working Longer Improves Almost Everything Laurence B. Siegel and Stephen C. Sexauer February 2018 We are all living longer, everywhere in the world, and the change is dramatic and relatively recent. Yet we work for only 30 to 40 years of what can easily be a century-long life. For the first time in human history, people are trying to stretch the income from a relatively short working life over a much longer period, potentially 60 to 80 years of adulthood – no wonder people are having trouble saving enough money to retire! The key to solving this problem is working longer. Much of the current retirement “crisis” is thus completely predictable, and has nothing to do with low market returns or pension fund mismanagement. 1 It is simply an artifact of increased longevity. Working for 30 or 40 years of adulthood, to pay for 60 or 80 years of adult living, is not a sustainable strategy. (This ignores the first 20 years, paid for by parents.) Most people just don’t produce enough in 30 years to finance the better part of a century’s consumption. The implications are straightforward: As longevity increases, we must save more, consume less in retirement, or work longer. Forcing people to save more is tough, and is antithetical to the principles that underpin a liberal democracy. Consuming less is an option, but not an attractive or easy one. But changing the institutional constraints and incentives so that people voluntarily work longer and benefit from that work is both doable and consistent with liberal ideals. We realize that some people cannot work for health reasons, and some hate their work. But a very large number of people facing retirement would like to work longer, especially if the work were easier or less time-consuming; they would settle for lower pay, which is much better than no pay. Plus, there is evidence that work brings connections, purpose, and challenge, and these can bring better health and happiness. It’s clear that the chief reasons people do not work beyond the conventional retirement age are the legal, regulatory, cultural, and behavioral constraints that have been erected. If we can remove some of these, allowing people better access tot their own human capital, they can achieve a fully funded retirement that can be longer, happier, and healthier. 1 Or low liability discount rates, the flip side of low market (especially fixed-income market) returns. 2 Medicare is a tougher nut to crack because you can collect it at age 65 whether you’re a worker or a retiree; the additional tax revenue from people working longer is a minor benefit.
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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%.
ROUGHDRAFT–FORPERSONALUSEONLY
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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]
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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.
