The FT’s Sarah O’Connor writes about the boom in ‘self-employed’ UK workers over the past few years — they now account for 14 per cent of the country’s workforce, up by just over 1 percentage point since 2008:
But the phenomenon has not been evenly spread. People aged 50 and older account for more than 80 per cent of the increase in self-employment since 2008.
Some older people are choosing to set up their own businesses, challenging conventional wisdom that recessions bring out entrepreneurialism mostly in the young. Others are resorting to self-employment because they cannot find jobs or afford fully to retire.
We don’t know whether, or how much, this might be taking work away from younger unemployed people. But it does demonstrate (among other things) that the older you are, the more likely you are to have acquired enough skills and experience to find a way of remaining in the labour market even in a slump. ( Productivity puzzles notwithstanding.)
Older people are also surging in the workforce in the US, and no doubt for some of the same reasons as in the UK, such as a shortfall in retirement savings or returns on assets.
Citigroup’s Nathan Sheets pointed out the following US data to us recently, in a note by his colleagues Steven Wieting and Shawn Snyder, from September:
That’s every age group below the age of 55 seeing a rise in unemployment, while every group above 55 is experiencing the opposite — even with an increased participation rate. Both are coming off a low base, to be fair. But it’s striking that they are accompanied by such poor figures for the 35-44 year old cohort.
Wieting and Snyder write (emphasis ours):
Weakness in labor markets has been skewed to workers in their 30s and 40s and among teenagers (many of whom work as a matter of discretion rather than need.) The 10.4% drop in employment among individuals aged 35-44 (almost equally distributed between men and women) since the employment peak of late 2007 stands out as particularly severe . The population of this cohort has grown 2.6% over the nearly five-year period, slower than broader adult population growth of 4.5%. Such a difference hardly explains a net employment decline reaching double-digits.
The changing fortunes of older workers is having a stark effect on the incomes of households they lead — they’re bucking the trend towards lower wages:
Wieting and Snyder say that more older people working is a good thing in many ways — they describe it as rather like an unexpected influx of skilled migrants, boosting both supply and demand (a point also made by their colleague Steve Englander.) But they worry that this development is partly due to the distorting effects of the US healthcare system:
The lack of need to provide healthcare benefits coverage for 65+ aged workers – given their access to federally-provided Medicare – may be one cause of the stronger hiring trend for the group. In particular, small businesses that might not provide health insurance coverage could potentially skirt a future requirement to do so or lower their future liabilities by hiring workers with this existing coverage.
The FT’s story on older UK workers might contradict this theory somewhat; in the UK employers are not responsible for health insurance, but this has not stopped older workers’ increased labour market participation. One theory is demand side: US employers want employees who don’t incur health insurance costs, and they happen to be older workers. The other is supply side: older UK workers are able to adjust to the shifting economy by freelancing their skills. Although we think the same demand-side theory might also apply in the UK: various entitlements to the over-60s such as free public transport means that they can more easily endure the unpredictability of a self-employed income, which in turn suits employers who wanting to source work with no strings attached. Plus, as the FT reports, some of these older workers become self-employed because getting a traditional job becomes harder, above a certain age.
Either way, if increased proportions of older workers are squeezing out some of the younger would-be workers for whatever reason, there could be a significant downside if the younger workforce is permanently affected. Citi, again:
Degradation of skills for those in early- or mid-career development should pose a somewhat more lasting cost for the economy and larger negative impact on U.S. output potential, as older workers are already expected to leave the labor force at higher rates. With the remaining careers of younger workers longer in duration, any structural unemployment problems should have a longer-lasting impact.
Wieting and Snyder cite OECD research that found a one percentage point rise in US unemployment, if sustained over multiple years, raises the structural unemployment rate by 0.2 per cent. This means long-term unemployment among those in their early- to mid-careers could have several long-term costs:
This could include a failure to build private savings for retirement. It could also generate a lasting shortfall in tax revenues for “pay as you go” entitlement programs covering the pensions and healthcare costs of older workers.
We probably don’t need to remind you that supporting the entitlements of an ageing population is expected to be a big drag on state expenditure. This (in addition to the “truly unusual degree” of cost inflation in US healthcare) is the big drag on the structural deficit, say Wieting and Snyder.
And just in case you needed reminding of the looming demographic mountain:
If structural unemployment is higher among the 20 – 64 cohort than, say, CBO assumptions, which Wieting and Snyder fear could be the case, this could all make debt sustainability even more difficult than it already appears.
*(Sheets suggested that the drop in 35-44 employment might be due to dual-income families simply opting to become single-income families when one of them becomes unemployed — to stay at home with the kids and so on. Living in Sydney this blogger finds that hard to imagine…)
Related links: Over-50s stage work revolution from home – FT The old are stealing out jobs - FT Alphaville Don’t kill the old! – FT Alphaville Kill the old – FT Alphaville Kill the old, AAA-rated edition – FT Alphaville