Monday, August 9, 2010

Early Retirement Is Shrinking the Labor Force

From the AP:

More people filed for Social Security in 2009 — 2.74 million — than any year in history, and there was a marked increase in the number receiving reduced benefits because they filed ahead of their full retirement age. The increase came as the full Social Security retirement age rose last year from 65 to 66.

Nearly 72 percent of men who filed opted for early benefits in 2009, up from 58 percent the previous year. More women also filed — 74.7 percent in 2009 compared with 64.2 percent the previous year.

Jason Fichtner, an associate commissioner at the Social Security Administration, said the weak economy has led more people who lost their jobs to retire early. However, it also has forced some people hard-hit by the recession and in need of a bigger paycheck to push back retirement and stay in the work force longer.

"But we're seeing more people taking early benefits than staying in the workforce longer," Fichtner said.

This is an interesting trend that has important ramifications for the labor force. This is also a good time to run through some of the basics of employment statistics. The biggest population in the BLS survey is the civilian non-institutional population, which is:

... persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

A sub-category of this group is the civilian labor force, which is, "all persons classified as employed or unemployed in accordance with the definitions contained in this glossary."

The difference between the non-institutional population and the civilian labor force is the category "not in the labor force," which

Includes persons aged 16 years and older in the civilian noninstitutional population who are neither employed nor unemployed in accordance with the definitions contained in this glossary. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching.

As people have left the work force for early retirement, we've seen a drop in the total civilian force number, which has also led to a drop in the labor force participation rate -- or the percentage of the population that participates in the labor force.

Consider this chart from the St. Louis Federal Reserve of the Labor Force Participation Rate:

Note that it increased starting in the early/mid 1970s and continued to increase strongly until the early 1990s. Then it levels off, increases a bit more as a result of the near full employment in the 1990s, but then starts to move lower at the beginning of the decade. The number also takes another drop in as a result of the recession, which is explained above.C onsider that this arc traces the employment path of the baby boomers.

Finally, remember a very important statistical point. According to the BLS, "Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force." The phrase "not in the labor force" has a very important statistical meaning that sometimes gets lost in translation.