Guest blog by Peter Coy
Stanford economist John Shoven (pictured) has just written an optimistic piece about how increasing rates of labor-force participation at older ages could increase GDP and help finance entitlement programs. In spirit, it’s a lot like a cover story I wrote for BusinessWeek on June 27, 2005, called “Old. Smart. Productive. Surprise! The graying of the workforce is better news than you think.”
Shoven’s National Bureau of Economic Research working paper takes the position that you’re only as old as you feel. Instead of defining age as years since birth, he defines it as years remaining until death (or mortality risk, which is the same general idea). Measuring age this way changes everything. By the conventional measure, in which 65 is the gateway to “elderly,” the fraction of the U.S. population that’s elderly will grow about 66% between now and 2050. But using Census Bureau projections for mortality improvement, Shoven says “the fraction of the population that is above a mortality rate that corresponds to 65+ today will grow by only about 20 percent.” The trick, then, if people are living longer, healthier lives, is to keep them in the workforce longer.
That’s essentially the approach I took in my 2005 cover story. In a back-of-the-envelope calculation, I figured that a combination of increased productivity of older Americans and higher labor-force participation could add 9% to gross domestic product by 2045, on top of what it otherwise would have been. That was based on the assumption that better health and technology would reduce the productivity gap between older workers and their younger counterparts.
Where I came up with an increase in GDP of about 9% by 2045, Shoven estimates an increase of between 7% and 10% by 2050. That’s strikingly similar considering how iffy these things are.
In a policy section, Shoven examines various ideas for encouraging work at older ages, such as changing the Social Security benefits formula so it uses 40 or more years’ pay instead of just 35 as now. Concludes Shoven: “It is time to consider a new way to measure age.” I agree.