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Can Educational Attainment Explain the Rise in Labor Force Participation at Older Ages?

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  • Gary Burtless

Abstract

The labor force participation of men age 60-74 has increased in recent years. Since reaching a post-World War-II low point in 1993, the share of such older men either working or looking for work jumped about 11 percentage points, from 33 percent in 1993 to 44 percent in 2010. The increase came at a time when changes in the retirement income system provided incentives for career workers to remain in the labor force longer. The share of earnings that Social Security replaced at any given age was falling due to the rise in the program’s Full Retirement Age. Workers could partly or fully offset the decline by retiring later. Workers were also becoming increasingly dependent on 401(k)s for their workplace retirement savings. Unlike traditional (defined-benefit) pension plans, 401(k) plans do not offer strong financial incentives to retire earlier rather than later. Working longer provides more time to save and earn investment income and shortens the time in retirement that must be financed with 401(k) savings. The rise in labor force participation can thus be seen as a response to changes in the retirement income system that reduce benefits available at any given age and reward working longer. The question addressed in this brief is the extent to which the increased educational attainment of older men helps explain their increased participation in the labor force.Educational attainment is a key determinant of worker productivity. Better educated workers are paid more and have more employment opportunities. At older ages they also tend to have better health. An increase in the educational attainment of older men can thus be expected to increase the willingness and ability of older men to work longer. The discussion proceeds as follows. The first section presents data on the rising educational attainment of older men and the closing of the educational gap between older and prime-age men. The second section examines the wages earned by older and younger workers to see whether these educational gains made older men more attractive to employers. The third section reports the results of an analysis assessing the extent to which the rise in educational attainment can explain the rise in participation. The final section concludes that the rise in educational attainment is a significant factor that makes older men more willing and able to remain in the labor force. But the gains in older men’s schooling attainment, both absolutely and relative to attainment of younger workers, are slowing. Therefore, the gains we have seen in labor force participation among older men will probably slow in the near future.

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Bibliographic Info

Paper provided by Center for Retirement Research in its series Issues in Brief with number ib2013-13.

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Length: 6 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:crr:issbrf:ib2013-13

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