“Jobs Friday” is usually a nerdy day for financial types and economists only. But everyone was watching the most recent jobs report. I had a big drink and told my family to remember May 8. For labor economists, it will be a day to remember. For the first time, even the teenagers really listened.
Due to the COVID-19 recession, the U.S. has now hit a depression-era unemployment rate of 14.7%. And it gets worse. In a highly unusual footnote, the Bureau of Labor Statistics explained that millions of jobless were misclassified as employed due to errors in survey responses. Adding them back in, as well as discouraged workers (workers who want to work but are too discouraged to look), the true unemployment rate is over 20%.
Older workers in the COVID-19 recession
On Jobs Friday I look for older workers. The COVID-19 recession is causing a special type of hardship for this group. Older workers who kept their jobs are risking their health and lives. The ones who lost their jobs may be poor or near poor for life.
The jobless rates for workers over 55 rose to the unheard-of level of 13.6%. Remember, this is an undercount due to faulty responses. This number also doesn’t include the many older workers who have dropped out of the labor force.
Most workers are waiting for the economy to open, but older workers don’t get re-hired as quickly and some are forced into early retirement. We know early retirement really means downward mobility. They can’t save anymore without a job and the little savings they have will get drained by market losses or in replacing lost income. The economic fallout from the virus is deep, and older workers will take the biggest hit—they don’t have time to recover like younger workers and going back to work could be dangerous.
If older workers cannot get rehired, they start to drain their savings sooner than expected and claim Social Security benefits a lot sooner than they wanted. And we know what that means. For lower earners who rely solely on Social Security, leaving the labor force earlier than planned means spending whatever meager savings they have or going into debt. Collecting Social Security at age 62 instead of full retirement age reduces lifelong benefits by over 30%.
The typical older worker was already in trouble before the crisis. Around 35% of older workers had no retirement savings. The median balance for those who had a defined contribution account such as a 401k was only about $92,000 before the COVID-19 recession (equal to lifetime payments of roughly $400 per month). Now these already low balances have fallen in value due to market losses. Involuntary retirement, low retirement savings and claiming Social Security benefits early—which shrinks benefits for life—can lead to life-long-poverty.
The economy relies on older workers
Since the bulge of boomers are now older workers and recent retirees, the scale of this new elder poverty will be devastating to the nation. We know from past recessions that many older workers never came back to the labor force. Conor Sen at Bloomberg makes the sensible argument that if older workers don’t come back the economy may not come back.
Between 2008-2018, the number of older workers grew by 9.5 million. In the same time period, the total labor force of 162 million in 2018 grew by 7.8 million. This means the growth in the number of older workers accounted for all labor force growth in the past decade, since the net number of younger workers fell. Older workers will continue to make up for most of the growth in the next ten years.
It is our broken retirement system that exposes individuals to such deep risks and creates economic and personal instability, especially in middle and working-class families. The pandemic was going to hurt no matter what the retirement system looked like. But because it is so broken already, we will feel this recession for a long time.
Bottom line: The one word to describe the April jobs report is devastating.