Employment of People Ages 55 to 79

After declining for decades, the share of people in the United States ages 55 to 79 who were employed began to increase in the mid-1990s: In 1995, 33 percent of people in that age range worked, but by 2018, 44 percent did. That increase was the result of continued increases in employment for women and a reversal of previously declining employment for men. The changes in employment of people ages 55 to 79—the period during which many people stop working—were related to changes in their demographic characteristics and the jobs they held, as well as to changes in Social Security.

As members of the relatively large baby-boom generation aged into their mid-50s and beyond, people ages 55 to 79 started making up an increasing share of the population. Whereas people of that age group made up 24 percent of the population in 1990, they constituted 31 percent in 2018. That increase will continue at least through 2027, the Congressional Budget Office expects. Accordingly, the population of that age has had, and is expected to continue to have, a large and increasing impact on the federal budget.

How Do Age, Sex, and Marital Status Relate to Older People’s Employment?

Changes in the age distribution of the population between ages 55 to 79 account for about a quarter of the increase in the percentage of them who were employed (that is, in the employment-to-population ratio for that group) between the mid-1990s and 2018. Within that population, people who were younger—those under age 62—made up a bigger share at the end of the period than at the beginning. Because younger people are more likely to work, that change in the age distribution pushed employment up correspondingly.

When people were born also affected employment. The increase in the employment-to-population ratio since the mid-1990s occurred partly because women in later birth cohorts were more likely to be employed than those in earlier cohorts at every age between 55 and 79. For example, at any particular age between 55 and 79, a woman born in 1940 was more likely to be employed than was her counterpart born 20 years earlier. For men, the relationship was more nuanced. At any particular age between 62 and 79, men born later were more likely to be employed than those born earlier, but the reverse was true for those between ages 55 and 61; at those ages, men born later were less likely to be employed.

The employment-to-population ratio for people ages 55 to 79 also varied considerably by sex and marital status. Between 1990 and 2018, men in that age group who were married were more likely to be employed than those who were not. The opposite was true for women. However, because married women’s propensity to work grew more than that for unmarried women over the period, the gap between married and unmarried women was mostly eliminated by 2018.

What About Education?

People with more education are more likely to work than those with less. Thus, people with a high school diploma are more likely to be employed than people without one, and people with a college or graduate degree are more likely to be employed than people without a degree. Moreover, the likelihood of being employed for a person with a given level of education has changed over time. For instance, between 1990 and 2018, the employment-to-population ratio increased for both men ages 62 to 79 and women ages 55 to 79 with all levels of education.

Additionally, more men and women of those ages had college degrees in 2018 than in 1990. Those increases in educational attainment help account for the rise in employment among older workers during the period. By CBO’s estimates, had the propensity to work for people of a given age and education level remained unchanged since 1995, the employment-to-population ratio would have been expected to increase by 4 percentage points for men and 5 percentage points for women between 1995 and 2018 because of improvements in educational attainment. However, over the period, the ratio increased by 9 percentage points for men and by 12 for women. Together, then, changes in age and education account for at most two-thirds of the increase in the employment-to-population ratio, indicating that other factors also played a role.

Without similarly comprehensive data on factors besides education that are related to employment, CBO did not attempt to quantify their contributions to the increase in employment since the mid-1990s. Moreover, disentangling the effects of various factors is difficult, as changes in those factors have been occurring simultaneously. For example, the fact that educational attainment of older people increased in the period before the mid-1990s, when the share of them employed declined, indicates that changes in educational attainment alone cannot explain the reversal of the trend in employment.

What About Health?

From the mid-1990s to 2018, the health of people ages 55 to 79 improved substantially, reflecting gains in self-reported measures and longevity. Improvements in health affect employment both because healthier people are physically able to work longer and because increased life expectancy might induce people to spend more years working in order to finance retirement.

Despite the improvements in those measures of health, the share of eligible people from the population age 55 and older who received benefits from the Social Security Disability Insurance program increased during the period. That increase may reflect widening disparities in health at older ages, an increase in the number of women eligible for disability insurance because of increased work experience, increases in the rates at which people apply for and are approved to receive disability insurance during recessions, and changes in other federal income support programs, among other factors.

What About Job Characteristics?

Job characteristics, including the types of work, the types of retirement plans, and the availability of health insurance, also might have influenced the increase in the employment-to-population ratios for people ages 55 to 79 since the mid- 1990s. Full-time employment among older people increased, whereas part-time employment remained unchanged. Thus, the increase in employment was, to a certain degree, driven by people’s choosing to remain employed full time for longer. Additionally, over time, fewer people worked in blue-collar jobs. Because blue-collar jobs tend to have greater physical demands than other jobs and workers in those jobs tend to retire earlier, that decrease helps to account for some of the rise in employment of people ages 55 to 79.

Other characteristics of the jobs people held, such as the prevalence of different types of employer-sponsored retirement plans and the availability of health insurance, changed considerably between the mid-1990s and 2018. Both defined benefit plans and employment-based health insurance for retirees became less common. That shift in availability probably induced people to stay employed longer. Unlike defined benefit plans, which often are characterized by financial incentives for retiring by a certain age and are not portable from job to job, the increasingly common defined contribution plans allow workers to more easily switch jobs without losing retirement benefits. Those defined contribution plans, however, place more of the financial risk of saving for retirement on the individual than do defined benefit plans. Many workers, facing the reduced incentive to retire at a particular age and the increased risk of saving for retirement, work longer. And as employment-based health insurance plans that cover retirees became less common later in the period, some people might have stayed employed longer to retain their insurance longer, particularly before becoming eligible for Medicare at age 65.

What About Social Security Policy?

Policies that affect Social Security retirement benefits also changed in a way that encouraged staying in the workforce longer. The full retirement age (FRA)—the age at which people become eligible for full retirement benefits from Social Security—increased. Also, the retirement earnings test, which delays the receipt of benefits for people who have earnings above certain thresholds, became less stringent for workers younger than the FRA and after 2000 did not apply to workers older than their FRA. In addition, delayed retirement credits—the financial incentive for delaying receiving one’s benefits past the FRA—increased for later cohorts. All of those changes increased the incentive for people to remain employed longer and to delay claiming their Social Security benefits.

How Does Increased Employment Among Older People Affect the Federal Budget?

Although this report investigates reasons for the increased employment among older people, it stops short of analyzing the effect on the federal budget. Suffice it to say, the effect is complex and uncertain. On the one hand, more employment is associated with higher gross domestic product and higher tax revenues, including more payroll taxes that fund the Social Security trust funds. In that way, the increase in the employment and labor force participation of older people helps to compensate for a decline in those measures for people ages 25 to 54, who make up the bulk of the labor force. Increased employment among older people may also reduce spending on federal health care programs because people who work are more likely to use private health insurance than Medicare or Medicaid. On the other hand, the increase in employment may push up spending on Social Security benefits over the long term if more people delay claiming benefits past the age at which they are entitled to begin claiming them.