Thursday, January 5, 2012
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This article says that most people plan to retire when they're 70 or older instead of 65. Some even speak of waiting until they're 80 to enjoy their golden years. People simply can't afford to stop working any earlier than that, especially since most don't expect to get anything from Social Security. But those people staying in the work force longer could have a negative effect on unemployment. It would reduce frictional unemployment (voluntary unemployment), and that may seem like a good thing on the surface. But frictional employment is natural and will always be present to some degree, so it's not a big deal if we have it. The problem is that if people wait longer to retire, they make it harder for others to get jobs. In recessions and troughs, the younger and more inexperienced are going to be layed off first unless they're needed. If the more experienced potential retirees hold on to their jobs, the younger people (who may have to provide for a family) won't be needed and will have a harder time finding work. That will increase the cyclical unemployment, which is the type of unemployment we want to minimize the most. But if Social Security is going to run out soon, the older people don't have much of a choice.
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This is a very interesting article from an economics perspective. You have made a very good point about this making it more difficult for younger people entering the workforce to find jobs because the people who would be retiring and creating space in a company are going to continue working. Another important point, though, is that as these people are growing older, their productivity will be reduced. This will also have a negative impact on the economy. I think that each individual person must consider their retirement by thinking at the margin. At this point, the benefits of working one more year and earning one more year’s salary outweighs the benefits of retirement. What also applies in this situation is the tragedy of the commons. Although the potential retirees may be aware of how their presence in the work force may affect the economy, they do not have that large of an incentive to retire, especially because at this point they can no longer afford to retire.
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