State of the Union January/February 2008

No Country for Young Men

The Baby Boomers’ retirement will change the texture of society in ways we’ve scarcely begun to contemplate. A dispatch from America’s coming silver age

If the Boomers really do work in large numbers, many ills will be cured. Contrary to stereotypes, seniors are valuable workers. Though research shows that some cognitive abilities, such as memory and calculation, can decline with age, seniors’ experience has generally endowed them with other skills, particularly “soft skills” like customer service and management. Later retirements by some workers would increase the size of the economic pie and ease the burden of providing for those who do retire. David Wise estimates that if the Boomers stayed in the workforce an average of five more years, by 2030 GDP could be 7 to 8 percent bigger than it otherwise would be. That translates into enough tax revenue to make a major dent in Social Security’s budget gap (though not Medicare’s much larger problems).

So the trillion-dollar question is, Will the Boomers really work in large numbers as they hit the traditional retirement years? Whatever they say beforehand, very few people over the age of 65 do. Labor-force participation rates among seniors are far lower than they were in 1950, even though life expectancies have risen. In 1950, almost half of all men over 65 were still working. Now, that figure is less than 20 percent.

Part of this is the result of pensions and Social Security benefits—and the decline of pensions, combined with low savings, will surely cause some rebound in senior work rates (indeed, a small rebound has already occurred). But it’s also the perverse result of a social bargain we’ve made with our workers: you accept slightly lower wages than you’re worth when you’re young in exchange for steady increases as you age. The problem is, this makes older workers expensive compared with young people, and harder to reemploy if they lose their jobs. Wages are what economists call “sticky”: they rarely adjust downward, except after long agony.

Somewhere around the age of 45 or 50, the experience of losing a job seems to change dramatically. Whatever the reason behind the job loss, long-term unemployment becomes a much more likely prospect. People older than this are sometimes unwilling to accept a new, lower-paying or lower-status position, even if that refusal causes substantial economic hardship. Instead, they may label themselves consultants and wait for a job comparable to the one they lost, one that, in all too many cases, never comes along; or go on disability; or simply exit the workforce altogether.

Accepting a lower wage feels too much like accepting a lower value on yourself—and for seniors and near-seniors, accepting that you have peaked economically. Even without age discrimination, this would limit the employment prospects of older workers. And both anecdotal evidence and government data suggest that age discrimination is a persistent ill.

One of the greatest challenges for the country will be creating good jobs for seniors, ideally ones closer to where they built their skills and knowledge than the aisles of Staples or Home Depot—ones in which they’ll be the most productive. There’s no national bureau that can bring about this change. It must emerge organically, from companies learning to accommodate their older workers on the one hand, and finding creative ways to mask or reduce the emotional impact of pay cuts on the other. And from changed expectations on the part of 60-somethings about career paths and hierarchy.

Until that happens—and even once it does—our politics are likely to be contentious, because to many people, spanning several generations, it may feel as if there’s not enough money to go around. And indeed there’s no getting around these facts: in 1945, the year before the Baby Boomers began entering the world, each retiree in America was supported by 42 workers. Now each retiree is supported by three. When the Boomers are fully retired, each of them will be supported by just two.

What happens when currently optimistic Boomers finally face the hard realities of their savings accounts? Will they ask for more from the government? At a bare minimum, seniors already struggling with their finances are not apt to look kindly on benefit cuts. Yet the cost of the benefits we’ve already promised them will weigh heavily on the workers expected to support a half-Boomer apiece.

Social Security is the comparatively easy problem to solve. It will go from consuming 4.3 percent of GDP in 2007 to absorbing about 6.2 percent in 2030. That’s a big jump—if the cost were spread evenly, it would be equivalent to about a 5 percent increase in payroll taxes for each worker—but by and large, the economy will be able to cope.

Medicare is a different story. Health-care costs now consume about 16 percent of GDP, but projections by the Department of Health and Human Services suggest that by 2016, that will have risen to almost 20 percent. Wise speculates that closing the Medicare budgetary gap would require a tax increase of something on the order of 8 to 12 percent of total payroll. That is a massive tax increase—$4,000 to $6,000 a year on a $50,000 income (again assuming the tax were spread evenly). Many economists and budget analysts have drawn up plans intended to fix Social Security, through some combination of benefit cuts, higher retirement ages, and tax increases. But almost no one claims to have any good ideas about Medicare.

Stories of America’s aging often unfurl like disaster tales, and I suppose this one has, too; it’s hard not to sound gloomy when looking at the various ledgers involved in the Boomers’ retirement. But as I walk along Main Street in Newark on a fall day, the statistics seem less oppressive. The town may be aging, and the economy falling behind the rest of the country, but people around me look about as happy as people everywhere else. Not only that, but their lives are still getting better.

Statistics can always tell two stories. If we catch criminals, incarceration rates will rise; if we cut infant mortality rates, education budgets five years later will show the strain. The statistics on America’s demographic transition are no exception. We are all, to be sure, going to die, but not as soon as we used to—and so our pension bill will rise. Medical science is improving by leaps and bounds, making us healthier and longer-lived—and so our health-care bills will grow. Technological progress will continue to raise our living standards and grow our economy as seniors leave the workforce—it’s only the rate of growth that will decline.

We should not look away from the darker side of life in an aging society. It would be better to avoid Newark’s problems: slow economic growth, a heavy tax burden, the political problems that come with dividing limited resources between young and old. There is still time for policy fixes (particularly in Social Security, Medicare, and immigration) to avert some of the worst problems, so it makes sense to focus on what, exactly, we are trying to avoid.

But it’s also worth remembering that the problems are only a part, and not the largest part, of life in Newark. Which, despite the problems, is still pretty good. Incomes may not be growing as fast as they once did, but Wal-Mart and the Internet make wages go farther than they used to. I am toting a new digital camera bought at the local Wal-Mart for less than my grandfather would have paid for a mid-range film model in the 1970s. And I have with me a lunch of fresh bread and artisanal cheese purchased at Wegmans, a supermarket light-years away from the TV-dinner-and-canned-soup horror of my mother’s youth.

Shopping is the least of it. Everywhere I go, I meet people who would never have lived so long if they’d been born a few decades earlier. Indeed, I’m one of them; I’d likely be deaf without penicillin for childhood ear infections, and dead without the al­but­erol inhaler that was only approved in the U.S. in 1981. Western New York is not the mighty economic colossus that once let Buffalo boast more millionaires per capita than any other city in America, but it is still a better place to live in now than it was then. And it is getting better all the time.

That, too, is our future. Aging will make the economy grow more slowly than we would like, and probably more slowly than we are used to. Social Security and Medicare will almost certainly be financed by a combination of benefit cuts, increased taxes, and higher retirement ages—which means that all of us will work longer than we want to, and pay more in taxes than we have before.

The political battles over all of this will be bitter, and they will probably be, too often, won by the retirees, who vote in force (though not always as a bloc). Those same retirees may also vote against things that are actually in their interest—thus shutting out the immigrants who could help them stay at home, and out of the nursing home, longer; turning down school taxes that could create a more productive workforce to support them; fighting for zoning restrictions that make it harder for the low-income workers who provide their services to live within easy commuting distance.

But if we will be worse off than we could be in an ideal world, we will still be better off than we are now, workers and retirees alike. We’ll not only be at least somewhat richer; we’ll also have years and years more to enjoy our health and wealth. The past in Newark is lovely, but the future, while not without its blemishes, is likely to be better still.

Megan McArdle, an Atlantic associate editor, blogs at meganmcardle.theatlantic.com.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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