"But when we increase the supply of labor, in the aggregate—by shoving more old people into the workforce—we lower the demand for labor, in the aggregate"
I’m an economist and that quote is nonsense.
Supply and demand can be visualised as curves that cross at some point, and that crossng point is the market outcome. Now if we add old people to the supply of labor this pushes the labor supply curve up, but the labor demand curve stays the same.
What changes is the location of where the curves cross (the market outcome), NOT the labor demand.
There’s also absolutely no reason to mention “the aggregate” here, since “supply of labor” and “demand for labor” are aggregates already, so it’s obvious that teh whole quote is about aggregate metrics.
Decades ago you could retire, live comfortably on a generous, defined benefit pension and then die a few years later while, in the meantime, a youngster took up your vacated job.
Arguably, defined benefit pensions became unaffordable as people began living longer in retirement. I think that it might be the case that people have to work longer simply because they’re living longer regardless of how you structure their pensions.
Thus it may simply be the case that increased youth unemployment is a natural consequence of not much more than increased life expectancy.
(There could, conceivably, still be a place for defined benefit pensions but they might have to be structured on a lower level of benefit and/or a later retirement; the latter would still affect youth employment and the former would affect old age poverty…who are you willing to hurt the most? )
Rates of workplace retention for older workers are raising all over the OECD. Certainly they are here in NZ and our pension system hasn’t undergone cuts. I’m not convinced.
The new equilibrium will employ more workers, but the pool of available workers grows faster, so unemployment goes up. That’s not what he said, it’s what he should have said. Make sense?
Another factor they’re overlooking is health. I work with seniors all day, and overall they’re a good deal healthier than their grandparents were. That’s the argument for raising the retirement age, and it’s true. However, many of the poorest seniors retired from jobs that ruined their health - roofing or mining or whatever. If you have disability benefits and turn 65, they don’t tell you to keep on getting SSD until you’re 70 - you can’t. Raising the retirement age makes no sense for these people.
Decades before that you could just get old and die because, outside of your family, no one cared. The window of your utopia was pretty small.
“window of utopia”…great phrase.
Well, about the economics as far as they can be discussed in online comments:
Draw a diagram with vertical axis (arrow pointing upwards) = labor supply (quantity of people willing to work) and horizontal axis (arrow beginning at same point and pointing to the right) = wage.
Draw a line from lower left to upper right. That’s a simplistic labor supply visualisation. More labor into labor supply means this line moves up (in the most simple case - it doesn’t need to go up everywhere the same).
Meanwhile, labor demand (jobs) is represented by a curve (simplistic: a line) from top left to lower right.
So adding more labor does in the most simple Econ 101-like case lead to a market outcome (lines crossing) farther left and higher = more jobs and less pay.
(The actual paths of the curves and their change over time is what makes all this much more complicated in reality. And then there are different jobs with different wage levels etc.)
Longer lifespans on one end of the actuarial model, lower birthrates on the other end.
A system which works beautifully with 6:1 workers:retirees will not work at 2.5:1 and dropping.
And before someone chimes in with “lift the cap on contributions” check out what the Social Security trustees’ actuaries say about that. It will postpone the day of reckoning by ten years, maybe twelve.
Medicare is in worse shape. Medicare is a system that’s beloved (hence the advocacy of “Medicare for all”) because it pays out far more than it takes in. Bernie Madoff’s first investors loved him, too, for the very same reason.
Personally I think we will find a solution to the insolvency of both, it looks something like this:
I wrote briefly for a college publication and ended up going to a conference for student journalists. I was never a journalism major, but I recall one of the speakers asking, “Who wants to work for the Washington Post?”
No one wanted to raise their hand and seem so ambitious,
“C’mon. I mean, people do die!”
The baby boomers have already retired…on their nice, defined benefit pensions. ;-|
“The 401(k) was meant to supplement, not replace, traditional pensions. Instead, companies began dropping their pension programs. Today, they’ve all but disappeared from the private sector: Only 10 percent of boomer-age workers can expect income from defined-benefit programs. Less than two decades ago, more than half retired with pension income.”
Arguable to say the least. Post some actual supporting evidence of this.
I belong to a state pension and it is doing just fine. Pensions don’t fail because people start living longer. Pensions aren’t going away because 401Ks are “better”. 401Ks are better for your employer because they can wash their hands of all responsibility. You lost it all in the market? Bummer, not their problem. Certain members of our state legislature routinely want to balance the budget by taking a “pension holiday” and not fully funding the state pension system. That’s how pensions fail, from being mismanaged. The pension system has actuaries, they don’t just wing it. It will cost X amount. But Junior State Senate Dude wants to show his constituents he’s saving them money, so they vote to shirk the obligation of fully funding the pension. That is mismanagement, pure and simple.
An additional contributing factor in the United States (and perhaps elsewhere) is the hyper-inflation in the cost of college. Parents such as myself feel the need to save significant sums for their child’s education so they’ll get a good start in adult life. The money saved for that purpose is not going to a retirement savings account, pushing the age of retirement further out. (Years of unemployment and under-employment during “downturns” haven’t helped either).
I dunno my soon to be ex employer and really the company I was contracted to are doing great hiring college grads and a lot of the openings are cause all us old guys with 15+ years are 3x the cost of the college kids.
Even the Republican hacks at Heritage admit that removing the cap would have a huge effect
despite all the voicing of opposition to it and the well-aimed omission of facts that don’t suit their agenda.
They hid their estimates (which can easily be disputed in favour of SS solvency) at the end of their article where almost nobody still reads, far below its contradicting sensationalist headline.
I’ve looked a bit into different retirement schemes from different countries and it’s obvious that the concerns about future retirement standard of life are all founded on ignoring that the changes will be incremental and creeping, and technological progress can be expected to keep a 1+% p.a. pace. This means we will get used to the change aver a long time, and we will not only have the current level of wealth to allocate, but also wealth (annual economic output) gains.
Yes. It’s quite the farce and debacle that “public higher education” is pretty much public now in name only.
I guess we’re just too poor as a nation to meet our obligations. How sad. Still, I remember a time, 2008-2009, when Heaven and Earth was moved (to the tune of approx 24 trillion in gifts and guarantees) to save the insolvent super-elite-wealth holders. Nothing much was said regarding that these indulgences were surely unsustainable and would lead to a day of reckoning.
It’s funny to me that when a small amount of careless, but influential, pigs demand their right to a full trough, the government and its affluent critics queue up to kiss the porcine hoofs, but if a mere member of the workforce inquires after their promised benefits, it is an insult to all right thinking people.
I seem unable to follow the righteous logic.
Yes, I actually know what a supply-demand graph looks like. Not all commodities obey this ironclad law. Labor, for example, is a great deal more complicated.
This would be true if there were zero economic growth over a lifetime. However, we’ve seen massive economic growth in the years since pensions started to be eliminated. We’re increasing our production (and wealth) much more quickly than we’re increasing our lifespan.
GDP PPP per-capita is now over 5x what it was in 1978 when the 401k was created. During that time, life expectancy has gone from 73.5 to about 79. That’s only 5.5 years more, or a 7% increase. Assuming retirement age then was 65, we could now have a retirement age of around 40, even with our longer lifespans, and the pensions would still be as affordable as they were back then. We already have plenty to provide for people and we’re gaining more each year.
And even with employment, prolonged wage stagnation during a period of prolonged inflation doesn’t help. While as a society our economy has been growing and we have more wealth than ever before, those who work have been steadily losing money for decades. That doesn’t really help with saving for retirement.
Of course we will! We do already. The gains are just not going to workers or retirement. They’re being funneled away from them.
If we refocused all the money we’re wasting in The War On Plants and The War On Brown People, we’d be set for at least another few generations. If we stopped spending trillions of dollars on jets that none of the armed forces really want and which are inferior to the old ones, that could last us another generation or three. But, we have our priorities. Better that our own people all die in miserable poverty than to admit that we’ve made some mistakes.