The increasing labor force participation of older workers and its effect on the income of the aged

The labor force participation rates of men and women aged 62-79 have notably increased since the mid-1990s. The result is a dramatic increase in the share of total money income attributable to earnings. For persons aged 65-69, the earnings share of total income increased from 28 percent in 1980 to 42 percent in 2009. For this age group in the late 1980s and early 1990s, Social Security benefits and earnings were roughly equal shares of total money income (about 30 percent); the earnings share is now more than 12 percentage points larger. When we focus on aged persons who receive Social Security benefits, earnings shares have increased markedly throughout the 62-79 age range since the early 1990s. We show that for aged persons with labor market earnings, those earnings have a large effect on their relative position in the distribution of annual money income of older Americans.     

The distribution of annual and long-run U.S. earnings, 1981-2004

Numerous authors have presented evidence of increased dispersion in the distribution of annual earnings in the United States from the late 1970s through 2004 or later. However, the dispersion of long-run earnings measured over many years has received relatively little attention because of the limited availability of appropriate data. This article uses the Social Security Administration's Continuous Work History Sample, which documents the earnings histories of 3.3 million workers, to examine changes in both the annual and the long-run distributions of earnings during 1981-2004 for men and women. For men, the results indicate an increase in long-run earnings inequality of roughly the same magnitude as the trend seen in annual earnings dispersion, but there has been very little increase in the dispersion of long-run earnings among women. If calculations are restricted to a sample of women who work every year of the observation period, a trend of increased earnings dispersion emerges, but much less so than that observed for men.     

Early retirees under Social Security: health status and economic resources

Some proposals to change the Social Security program to ensure long-run solvency would reduce or eliminate benefits for early retirees. This article documents the health and financial resources of Old-Age and Survivors Insurance (OASI) beneficiaries aged 62-64. It identifies a substantial minority of early retirees who might be economically vulnerable if either the early eligibility age or normal retirement age was raised. Attention is directed at the extent to which poor health limits work in this age group and the extent to which curtailment of early OASI benefits might lead to increases in the Disability Insurance (DI) program rolls. Using a set of comprehensive health measures, we estimate that over 20 percent of OASI beneficiaries aged 62-64 have health problems that substantially impair their ability to work. This finding implies that in this age range, as many severely disabled persons receive OASI benefits as disability benefits. In fact, 12 percent of early beneficiaries would meet a more stringent criterion for being classified "disabled"--SSA's medical standard for disability benefits. The evidence therefore indicates that OASI functions as a substantial, albeit unofficial, disability program for early retirees. Compared with those who have no health problems or are less severely impaired, early OASI beneficiaries who meet the medical criteria for disability benefits are more likely to be living alone and more likely to be poor or "near poor." The great majority of the group--almost 80 percent--are women. Analysis of their earnings histories suggests that most of these beneficiaries do not satisfy the insured-status requirements for Disability Insurance benefits. The article considers the different roles of the OASI program and the DI program for health-impaired individuals aged 62-64. Disability modelers sometimes overlook an important aspect of program administration. Under customary screening procedures implemented in Social Security field offices, applicants for early OASI benefits who appear to be severely impaired simultaneously apply for DI benefits if they are disability insured. If they are found eligible for DI benefits, those applicants become DI beneficiaries. The implication is that raising the earliest entitlement age would have little impact on the DI rolls. Unless there are changes in eligibility criteria, the DI program would not serve as a safety net for many of the most severely disabled early retirees.