Early Retirement: A Bad Idea Back Again
Youth unemployment has reached crisis levels in several European countries: 39% in Italy, 55% in Spain, and 60% in Greece. Now, early retirement, a so-called economic fix that I’d hoped was dead and buried, is being exhumed and put forward as a viable solution. It’s a zombie idea, and we need to leave it six feet under or two meters down for our EU friends.
The gist of early retirement is unfortunately intuitive: when people under 25 can’t find jobs, policymakers often get an itch to push older workers into retirement in order to make room for the young. In the case of the current crisis, when EU officials and heads of state convene in Berlin on July 3 to discuss youth unemployment, early retirement will be one of the options on the table, the Wall Street Journal reports.
Too bad, then, that economists tend to agree that early retirement is a terrible idea, belonging to a larger class of economic falsehood known as the Lumps of Labor Fallacy. Basically, Lumps-of-Labor holds that there’s a finite number of jobs in the world, and if you have a job, you’re keeping someone else from being employed. It would make sense, except for the small technicality that people who have jobs tend to buy goods and services, which helps employ other people.
Early retirement, specifically, has been tested many times in many different countries, and has been found nearly universally wanting. “There is almost no evidence that early retirement does anything to open up jobs for young people, while some evidence suggests it may even make the unemployment problem worse,” writes Matthew Dalton in the Wall Street Journal. “While getting a single older person to retire may open up a job for a young person, multiplying that across the entire economy would only reduce overall spending. The reason is that when people retire, their incomes fall and they spend less, reducing overall demand.”
In addition to early retirement’s potentially deleterious economic effects, the fact that it’s being floated as a solution at a time when societies the world over are only getting older strikes me as particularly wrongheaded. If we hope to prosper in a world where a quarter of the population is over 65 and babies can expect to live to 100, we need to grow more comfortable with older adults in the workforce, not less. Greece, Spain and Italy are particularly demographically old, with life expectancies of 79, 81, and 81, respectively.
But, interestingly, so are Norway (81) and Finland (80). And up in the frozen north, a different approach to old age and work has gained traction.
In Finland, the Finnish National Program on Ageing Workers (FINPAW) works actively to keep older adults in the workforce. The agency works with employers to make work environments more age-accessible and to retain older employees in less-demanding positions when they can no longer perform high-intensity jobs, so that their wealth of experience is not lost. It also retrains older workers to keep their skills up to date.
Finns can receive both a full salary and a government pension between ages 65 and 68. But in Norway, it’s possible to work well past 67. A lack of young engineers, in particular, has led Norway to institute a flexible retirement program that, among other options, makes it possible to defer receiving a pension until age 75.
Moving forward, the United States will have an abundance of examples to choose from among the many countries that are leading the way into a grayer future. Whether the US will take advantage of its growing population of older adults remains to be seen. The pitfalls of early retirement may prove too easy to ignore, and meanwhile, the approach favored by Norway and Finland may be prohibitively expensive. (So, for that matter, is early retirement.)
But there may be a third way.
Outside Boston, MA, Vita Needle produces high-precision medical supplies. Half of its 49 employees are 75 or older. What’s the benefit of such an aged workforce? They’re reliable and have great attention to detail – something many young workers can offer as well, of course. But they’re also cheap: part timers whose benefits are covered by the government. Most importantly, they’re available. In the mid 1980s, Vita had trouble convincing people to make the half-hour commute from Boston to the suburbs. Then, it started hiring the older adults right in its backyard. It never looked back.
For more private companies to follow Vita’s example and voluntarily hire older workers, it will require a massive shift in how we as a society view the capabilities of older adults. But if that happens, it will help us avoid the economic pitfalls of early retirement. At the same time, we’ll gain the wealth of experience that otherwise stands to be lost when older workers leave the workforce.
MIT AgeLab’s Luke Yoquinto contributed to this article
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