Boomer retirements driving down labor force

65-plus age group by far the fastest-growing in Ohio.

Only half of Ohio’s decline in unemployment since 2010 has been due to people finding work. The other half has been caused by a drop in the state’s labor force.

But why is the labor force shrinking?

New population estimates from the U.S. Census Bureau dispute a common assumption that declines in the unemployment rate are largely driven by discouraged workers. These people aren’t counted because they have given up looking for work. But the new estimates point to another force: It’s the Baby Boom flexing its demographic muscles again. This time, the boomers are retiring.

Since 2010, the 65-plus age group is by far the fastest-growing both in the state and the nation. And in Ohio, the building wave of the Baby Boom population reaching retirement age dwarfs the decline in the state labor force.

The population estimates show that Ohio saw microscopic population growth from 2010 to 2013, increasing by only about 25,000 people, or 0.2 percent.

More worrisome, the state also saw declines in both children under 16 (a decrease of 55,785, or 2.3 percent) and the working age population from 16 to 64 (down 44,528, or 0.6 percent).

But the state’s retirement-age population has surged, increasing by almost 126,000, a robust 7.7 percent. (Nationally, the 65-plus group is up 10.4 percent.)

By comparison, the state’s labor force shrank by 79,000 during the four-year period.

Just turning 65 doesn’t guarantee retirement. Some Baby Boomers are continuing to work past 65, but others have taken early retirement. In any case, the first three years of Baby Boomers — the generation that has been causing demographic disruptions ever since it began — will have turned 65 by this year.

Phyllis Cummins, a research scholar at the Scripps Gerontology Center at Miami University, said the estimates show that Ohio will need its older workers to stay on the job longer.

“What this tells me is that Ohio is going to continue to rely on its older workers just to be economically competitive,” Cummins said. “We need for these people to stay in the labor force. And it’s important to identify strategies that will allow that, whether it be job training or accommodations in the workplace.”

Fewer discouraged workers

Discouraged workers are a factor in Ohio’s declining unemployment rate, which has dropped from a peak of 10.6 percent in 2009 and 2010 to 5.5 percent in May.

But the ranks of discouraged workers have shrunk by more than a quarter since reaching a high of 1.3 million in late 2010.

In addition, if all the currently discouraged workers were hired tomorrow, it would hardly cause a ripple in the unemployment picture.

As of June 2014, there were an estimated 676,000 discouraged workers in the country. The labor force, meanwhile, is 157 million. So if discouraged workers were included in the labor force, they would account for a tiny fraction of it — 0.4 percent.

It can be difficult to tease out of the data exactly what is contributing how much to declines in the labor force.

Ben Johnson, spokesman for the Ohio Department of Job and Family Services, said the data released monthly by the Census Bureau that gives the state figures on employment doesn’t answer the question of what is causing the labor force decline.

“The reality is that people leave the labor force for many different reasons, and all of those reasons are probably having some impact on Ohio’s labor force,” Johnson said. “But it’s difficult to quantify how much of an impact any one reason is having.”

Likewise, George Zeller, a Cleveland-based economic research analyst and longtime observer of Ohio’s economy, said the data at the state level don’t allow him to definitively answer the question of how much discouragement and retirement are contributing to declining labor force participation.

“It’s some of both, we do know that much,” said Zeller. “Now how much of each? That we don’t know.”

Retirement surge

But Shigeru Fujita, a senior research analyst for the Federal Reserve Bank of Philadelphia, has found some clarity in a deeper dive into individual survey responses, called microdata, at the national level. Because of the survey sample limitations, Fujita has not tried his analysis at the state level.

Fujita’s report, published in February, was able to sort out the various reasons people withdraw from the labor force: discouragement, retirement, disability and returning to school.

During the recession and its aftermath — from the end of 2007 to the end of 2011 — the number of discouraged workers “increased significantly.” But since then, he said, their numbers have been flat.

“In this sense,” he wrote, “it is misleading to attribute the decline in unemployment during the last few years to discouragement.”

Instead, he found, retirement has the been main factor in declining participation in the labor force.

Since 2012, Fujita found, 80 percent of the decline in the labor force participation rate — the share of the 16-and-over population that is working or looking for work — was due to retirement. Trends for the other reasons have been relatively flat during the past two years.

And while not all those turning 65 choose to retire, Fujita found that once they do there is a very low chance that they will start looking for work again — and thus become unemployed – or find a job.

He found that about 1.5 percent of retired workers find a job in any month, and that the probability of joining the unemployed is even smaller.

“There is no question that there are a lot of people who are discouraged and dropped out of the workforce,” Fujita said last week. “But based on the data that I compiled, if you focus on the last two years, retirement was the key driver in the decline in the participation rate.”

Fewer in job pool

The data point to an even bigger problem: the retirement wave appears to be building.

The Ohio data, when seasonally adjusted, show the state’s labor force shrank by an estimated 14,000 in May, and is already down 36,000 from what was expected for the first five months of 2014.

That trend, said Coretta Pettway, chief of Ohio’s Labor Market Information Bureau, is cause for concern.

Labor force projections by Pettway’s bureau show that from 2008 to 2018, the 45-54 age group in Ohio’s labor force will decline by 284,000.

Meanwhile, the 55-64 labor force and the 65-plus labor force will each increase by close to 180,000.

“Again, not minimizing the people who want to find work, I think a larger issue is what it’s going to mean to us when the Baby Boomers are pretty much leaving the labor force and there aren’t enough people to fill in,” Pettway said.

“There are some economists who are concerned about the possibility of labor shortages.”

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