WPC# 2BVTZ #|x)?xxx,/Xx6X@DQX@HP LaserJet IIIes IIHPLASIII.WRSx  @,,,4a(HX@2@VR Z Courier New (TT)?xxx,Xx6X@DQX@HP LaserJet IIIes IIHPLASIII.WRSx  @,,,4a(HX@(26FO3#|x SleekNetTable of contents WP Defaults/$` hp x(#$#x6X@CX@#footnote tex#'#x\  PCXP#2gXcl@'endnote text#'#x\  PCXP#endnote refeDefault Paragraph FoDefault Paragraph Font headerheader` hp x (# (# 2d be @`  page numberpage number endnote referenceendnote reference footerfooter ` hp x (# (#  ;1#XO\  PUXP##X\ P:+QXP#2  vj  O heading 1heading 1 C9#g2PkCP# #C\  P6QP#footnote textfootnote text  footnote referencefootnote reference 44#XP\  P6QXP##C\  P6QP#biblio d` #n\  PC&P#2! ?< 3'3'Standard3' 3'StandardHPLASIII.WRSx  (   ЊX1Í.X1Í. 199495 ADVISORY COUNCIL ON SOCIAL SECURITY pTECHNICAL PANEL ON TRENDS AND ISSUES IN RETIREMENT SAVING $FINAL REPORT " 0*0*0*" T  199495 Advisory Council on Social Security T pTechnical Panel on Trends and Issues in Retirement Saving T $Final Report TP  September 29, 1995 T T TABLE OF CONTENTS TPT TP  ? <X` hp x (#%'0*,.8135@8: S<  #Xx6X@DQ/X@#э The inclusion of discouraged workers adds over a third to the unemployment rate of men aged 55 or older and adds over 70 percent for analogous women, but has only a very small effect on the unemployment rate overall (Herz and Rones 1989). > Although older workers (in the mid1980s) were about as likely as younger workers to be laid off, those who were laid off were much more likely to end up out of the labor force about onethird of those aged 55 to 64, threequarters of those 65 or older, compared with fewer than 10 percent of those 20 through 54 (Herz and Rones 1989). Older workers who are laid off or fired are more likely than others to experience long spells of unemployment, and they suffer greater earnings reductions if they do find work (Shapiro and Sandell 1987). Older workers may face declining job prospects as they age for several reasons. Some may suffer age discrimination per se, but others face sources of labor market adversity, sometimes privately efficient, that happen to increase with age. For example, firms with large fixed costs of hiring or training may prefer younger workers who offer more potential years of employment over which to amortize the fixed costs. In some cases, longterm, mutually beneficial implicit contracts between employers and employees may require cessation of employment or a significant cut in pay late in life. Lazear (1979) has argued that firms might lower turnover costs by paying workers less than their contribution to the firm during the early years of employment, and then more than their contribution near the end. Some compensation is delayed to encourage long tenure with the firm. If this pattern of compensation reduces turnover costs and the gains are distributed between the employer and the employees, then both parties can benefit. But at the point when lifetime compensation and lifetime contribution are equal, the employment contract must be terminated or the worker's compensation decreased to the level of his or her contribution. Although this agreement looks discriminatory at the end, it may have benefited the workers over the life cycle. This theory offers an explanation both for mandatory retirement, now generally outlawed, and for pension plans that penalize workers who stay on the job "too long." "'$0*((@@/"Ԍ An additional problem may be the fulltime/parttime mix of jobs that are available. Many older workers would like to retire gradually, which often means a period of parttime work before complete labor force withdrawal. In a recent survey of older Americans, 21 percent of the working men (aged 5564) and 43 percent of the working women (aged 5059) wanted to work part time (and the proportion increased with age), but only 6 and 19 percent, respectively, were actually doing so (Quinn and Burkhauser 1994b: table 1). Given these preferences, why are more older Americans not working part time? There are several possible reasons. Compensation is often poor on the jobs that are available, and many employers are reluctant to hire older workers at all. Workers who move from full time to part time usually do so at considerably lower wage rates and with fewer benefits (Gustman and Steinmeier 1985; Jondrow, Brechling and Marcus 1987; Quinn et al. 1990; Kramer 1995). Lower pay for these older workers is not necessarily evidence of discrimination. Workers who switch jobs lose specific human capital the expertise acquired on the old job that is not relevant on the new one (Shapiro and Sandell 1985). Their productivity can therefore decline when they move, but for reasons having nothing to do with age. Fixed hiring, training and employee benefit costs are amortized over fewer hours, both because of the worker's parttime status and because older workers have fewer years of service to offer to the firm. If so, firms may have to offer lower wages in order to make the arrangement profitable. As a result, firms often offer parttime employment in jobs that require relatively little supervision or training, and exclude fixedcost benefits from the compensation package. A final obstacle is employer attitudes toward older workers. Although employers speak highly of older workers' strong work ethic, loyalty and dedication, many fear that older workers are difficult to train and do not cope well with the technological aspects of many jobs (American Association of Retired Persons 1989; Belous 1990). In summary, older workers do face labor market obstacles as they age. Many who remain on their career jobs face declining compensation, as definedbenefit pensions or social security wealth decline in value with continued employment. Switching jobs is difficult because many employers are not eager to hire older workers, for reasons that may or may not be accurate. Parttime work usually results in lower pay, fewer benefits and reduced economic status. In a detailed survey of these issues, Straka (1992) concludes that without the elimination some of these demand side obstacles, attempts to increase the working lives of older Americans through antidiscrimination legislation or supply side measures may be ineffective. "'%0*((@@/"Ԍ ?< Conclusions: The labor market for older Americans has undergone significant change in the postWorld War II period. The most dramatic change has been the trend toward earlier labor force withdrawal for men, which lasted until the mid1980s. For women, the early retirement trend has largely been offset by the simultaneous increase in the participation rates of married women. Considerable evidence indicates that the growth of and financial incentives imbedded in social security and many (definedbenefit) employer pension plans played an important role in this movement toward earlier retirement. Many older Americans do not retire in one move, directly from full time career employment to complete labor force withdrawal. Rather, some retire more gradually, taking bridge jobs in the interim. These are often part time jobs, sometimes involving selfemployment, and usually involving a change of industry and/or occupation. The bridge jobs generally pay less than the career jobs did, and are lower down the socioeconomic scale.  ?< B. The Changing Nature of Employment   ?0< Broad trends in the labor market will affect those approaching retirement age today as well as those whose retirement decisions are far in the future. Job mobility can influence the relative attractiveness of different types of pensions, and changes in the distribution of earnings can have implications for future elderly poverty rates. The Panel discusses several relevant labor market trends and asks what they might suggest for the future. The recent and current emphasis on corporate downsizing, combined with a recession in the early 1990s, has contributed to a perception that the American workforce is increasingly mobile and that jobs are less stable than they were in the past. Recent layoffs, including middle management positions in bluechip firms once noted for their loyalty to workers, have strengthened these perceptions. The evidence backing these perceptions is mixed. Although there does appear to be a secular growth in the importance of parttime and contingent workers (those hired for a fixed term), aggregate evidence does not indicate that average job tenure for the American workforce is on the decline.  ?(#< Contingent and parttime workers: These workers lack a permanent fulltime attachment to a single job. They may work part time on one or more jobs, may work as temporary employees through an employment agency, or may be subcontractors or independent professionals. "'&0*((@@."Ԍ Temporary employees, probably fewer than 3 percent of the workforce, fill in for a short time on jobs that have been  ?<vacated or created to meet a shortterm increase in demand.2 V ?<  Ѝ` hp x There are no official statistics on the number of contingent workers. An important subset is the temporary help industry, which "has grown from onethird of 1 percent of total employment in the early 1970s to nearly 1.3 percent today (1992). While growth has been explosive, the fraction of the workforce employed on a contingent basis is probably still less than 3 percent." (Council of Economic Advisors 1994:123). See  ?x<also Belous (1989).footnote tex#x\  PC DXP# 2 Many are supplied by agencies that employ the individuals and contract out their services. Agencies that originally specialized in providing clerical help now provide a wide range of skilled and semiskilled workers. Leased employees are placed in jobs lasting a year or more, and have become a popular way for firms to fill jobs without providing benefits or making longterm commitments. Independent contractors are selfemployed people who work on a contract basis for one or more employers. Growth in these categories reflects employers' interest in having greater labor supply flexibility without the employee benefit obligations associated with career workers. Selfemployment, which overlaps with the independent contractor sector, accounts for about 9 percent of the total workforce, a proportion which has changed little over the past  ?<several decades (Quinn 1995).K V ?<  #Xx6X@DQ/X@#э` hp x#Xx6X@DQ/X@# The official statistics on the number of selfemployed exclude both the owners of incorporated businesses, even when the owner is the only employee or one of very few, as well as wage and salary workers who also own side businesses. Haber, Lamas and Lichtenstein (1987: 18) estimate that the "percentage of workers who owned businesses was 60 percent (SIPP) to 75 percent (CPS) larger than the percentage reported as self ?x<employed."#XP\  P6Q DXP# K The selfemployed have to provide their own benefits beyond social security. The selfemployed today have the lowest rates of pension coverage (16 percent in 1992) of any broad category of American workers.  The proportion of the workforce working part time has stabilized in recent years following significant growth during the prior decades. It grew from 15 to 20 percent between 1969 and 1983, and has remained about 19 percent since then (Saltford and Snider 1994: Table 1).  ?< Job tenure and mobility: Despite the broad press coverage that corporate downsizing and interrupted careers have received, aggregate government statistics do not support the notion that job tenure is declining. For example, over the past 15 years, the fraction of workers remaining on the same job for more than eight years has remained constant 30 percent in 1979 and 31 percent in 1983, 1987, and 1991 (Council of Economic Advisors 1994: 126; see also Diebold et al. 1994). Americans are mobile, but they have always been so. These aggregate numbers, however, might be concealing offsetting changes underneath. For example, the increasing proportion of older workers (who tend to have longer job tenure) might be masking declining tenure statistics within age cohorts. Age and genderspecific tenure statistics suggest otherwise, however, because they appear to be fairly stable for men in all age groups and slightly increasing for women (Yakoboski and Silverman 1994: table 16). It is still possible that the aggregate statistics conceal offsetting changes within certain demographic of socioeconomic subgroups of the population. For example, there is evidence that black workers, lowseniority workers and workers without any"''0*((@@/" college education have experienced a decline in job stability, but there are much more conflicting signals on the collegeeducated population (Diebold et al. 1994; Farber 1995; Marcotte  ?X<1995; Swinnerton and Wial 1995).j V ?<  Ѝ` hp x Marcotte (1995) attempts to reconcile the divergent research results on trends in job stability. Among the explanations are changes in the wording of a key CPS question in the early 1980s, and correction techniques for survey non ? <respondents.footnote tex#x\  PC DXP# j The most recent recession (199091) appears to have affected college educated workers and older workers more than previous recessions had (Farber 1993; Gardner 1995). This raises the possibility that the public perception of increasing mobility is caused by the recent experience of members of the labor force who traditionally enjoyed the most stable employment patterns. If so, the aggregate data may be concealing an erosion of the kind of job attachment that is associated with retirement income accumulation.  The Council of Economic Advisors (1994:126) has summed this issue up nicely. "Whether or not job security is decreasing, two things are clear. First, there has always been a great deal of instability in the U.S. labor market. Second, there is no  ?<question that there is a perception that job security is decreasing. This may be due entirely to the normal increases in job losses during the recent recession, to media accounts of mass layoffs at companies that used to offer unusually stable jobs, or to increases in job stability that simply are not reflected in aggregate statistics." Additional research is certainly needed on this issue.   ?P< Quality of jobs: Many analysts have argued that traditional middle class jobs are on the decline in America, and that recent job growth has been concentrated at the extremes lowwage, lowskill personal service workers at one end and highlyskilled, professional and technical workers at the other (e.g., Bluestone and Harrison 1982; Harrison and Bluestone 1988; Levy and Murnane  ?<1992; Rosenthal 1995).' U ?<  #Xx6X@DQ/X@#Ѝ` hp x Kosters and Ross (1987) challenge this view, arguing that the share of workers in the middle of the distribution has been stable, while the share at the upper end has increased. Levy and Murnane (1992) present a discussion of this debate. ' The middle seems to be shrinking, with the decline of averagewage, bluecollar, unionized workers in manufacturing jobs. As late as 1965, nearly 30 percent of the fulltime workforce was in manufacturing jobs while fewer than 15 percent were in services. Twentyfive years later, the positions were reversed: only about 17 percent of employees were in manufacturing and 25 percent were in services in 1991 (Anzick 1993). Jobs in the professional service sector have grown rapidly. These include professional and technical positions that require high levels of skill and creative problemsolving ability, much of which is provided through college and graduate school education, rather than through onthejob training. These are engineers, lawyers, investment bankers, consultants, writers, designers, and a host of other occupations involved with the manipulation, analysis and communication of abstract concepts. This group has experienced real pay increases over the past decade. Many can maintain flexible working careers, controlling"'(0*((@@." their hours and extending their productive worklife into old age if they choose. Gittleman and Howell (1995) use 17 measures of job quality and cluster analysis to group more than 600 jobs covering 94 percent of the American work force into 6 categories, or  ?<contours./U ?<#Xx6X@DQ/X@#  Ѝ` hp x The 17 measures of job quality fell into 5 categories: earnings and benefits, institutional setting (percent unionized; percent in the public sector), employment status (including hours and weeks worked), skill requirements and working conditions. / They find that "the distribution of employment over the period 197390 shifted sharply away from the two middlequality contours toward the two highestquality contours.... [Although] the two lowestquality contours showed no decline in employment share... [there was] a sharp drop in the quality of lowskill jobs." (p. 420) Rosenthal (1995) analyzed data on 278 occupations and found that the majority of jobs created between 1983 and 1993 were in the highest and the lowest paying quartiles.   ? < Racial diversity : The population reaching retirement age in the next century will be much more diverse racially than are current cohorts of retirees. The Census Bureau projects that between 1990 and 2030 the older (65+) white population will grow by about 90 percent, while the older black population will increase by almost 250 percent, and the older Hispanic population (of any race) by nearly 400 percent (U.S. Senate 1991:14). As a result, the proportion of elderly who are minority will double from 14 percent in 1990 to a quarter by 2030, and then increase to nearly a third by the year 2050 (ibid., chart 18). As shown below, minority populations have been underrepresented among those covered by pensions and overrepresented in the poverty populations.  ?8< Income distribution: One result of the growing divisions in the U.S. workforce has been an increase in income inequality, which is found for a variety of income concepts, household units and measures of inequality (Karoly 1993). There is general agreement that the primary cause of this has been increased labor market inequality a widening gap between the hourly wages and annual earnings of those at the extremes of the pay distribution (Levy and Murnane 1992; Danziger and Gottschalk 1993; Gottschalk and Danziger 1995).  Over the past two decades, median real family income in the United States has been stagnant, growing at only 0.2 percent in the entire 20 years between 1973 and 1993, after having more than  ?`"<doubled between 1947 and 1973. (CEA 1994:115; CEA 1995:176).!V ?<#Xx6X@DQ/X@#  Ѝ` hp x