Why we should be lowering — not raising — the retirement age
Republicans are not completely bereft of good ideas for what to do with Social Security. But at least one of those ideas — raising the retirement age — is very, very bad. Unfortunately, it's also the idea that's been embraced by "centrist" lawmakers and policy activists, along with GOP presidential hopefuls like Chris Christie and Marco Rubio.
It's a bad idea for two reasons.
First, as Ezra Klein recently tweet-stormed, there's an enormous class injustice baked into the proposal. Life expectancy for the upper class has shot up in the last few decades, but it's barely budged for the lower class. For the second group, raising the retirement age would reduce the modest respite at the end of their lives even further. As Jared Bernstein observed, "I've only heard the 'raise the eligibility age' argument from those whose life expectancies are going up."
The second reason, which is related to the first but cuts deeper, is that as the economy becomes more productive, the sane and decent thing to do is lower the retirement age.
Societies — especially free market societies — actually learn at a collective level over time. Some of this is due to better technology, and some of it can be attributed to better business models and tricks of the trade. Societies build knowledge, and thus get better at doing more with less: "total factor productivity" — economics-speak for what portion of total economic output cannot be attributed to the inputs of labor and capital — has been steadily rising since we started measuring it mid-century.
Another way to look at it is the output of the economy per worker per hours worked. In 2009, it took American workers about half the amount of time it took them in the mid-1970s to produce the same amount of wealth.
This raises the question: What should we do with that bounty? The first option, at one extreme of the spectrum, is for everyone to work the same amount of hours, but with double the amount of income. (Now, as the inequality crisis shows, this doesn't necessarily mean each individual worker's income doubles, just the total amount of income in the economy.) The second option, at the other extreme, is for total income to stay the same, and we all work half as much.
This is where you start to get a sense of the importance of the question. There are lots of valuable and socially constructive things you can do with your time besides work for pay. You can care for children, clean your home, volunteer at your church, travel the world, throw a BBQ with friends, visit family, help out an aging parent, join a neighborhood play or orchestra, start a band, work on a hobby or craft, etc.
Needless to say, this is precisely what a lot of Americans do with their retirement.
Of course, most societies do some mix of option one and option two. But the degree to which America has gone with "more income" is pretty remarkable. Despite being clobbered by the 2008 recession, the labor force participation rate is still higher than it was mid-century.
The average age of retirement for men was a year or two lower in 2011 than in 1962. For women, it was higher. The number of Americans who complete college has significantly increased since mid-century, but this delays entrance into the labor force by only a few years. Finally, in 1950, average annual hours worked per person was 1,908. In 2011 it was 1,703 — a decline of less than 9 percent.
And while all this was going on, economic output per worker per hour doubled.
When you lay it out like this, the push to raise the retirement age begins to look more than a little perverse. Retirement is a valued and time-honored part of American and Western culture. It's an acknowledgment that people deserve a break after putting in their years in the economy, and that the elderly among us should have a chance to enjoy themselves, spend time with their families, and give back to their communities in other ways. Beyond all that, it's an acknowledgement that there's more to life than a paycheck. You work to live, not the other way around.
So when the economy is able to give us that same paycheck for less effort, there's something demented about concluding that the portion of our lives spent in retirement should get shorter.
The response you usually get from critics is that the ratio of retirees to productive workers is going to increase as the baby boomers retire, and the economy won't be able to take the pressure. That ratio dropped from 5 to 1 in the 1960s to 3 to 1 in the 1990s, and by the time the baby boomer bulge plateaus around 2035, it will be 2 to 1.
But remember productivity? Economist Dean Baker did some useful calculations, and determined that if productivity increases by 1 percent annually between now and 2035 — a historically low rate, but it might be what's in the country's future — the gains to living standards would be around 25 percent. By contrast, the drag from the increasing ratio of retirees would be less than 10 percent. If productivity keeps increasing at its historic rate of 2 percent annually, the gains to living standards would top 50 percent.
So in 2035, workers can keep seeing bigger paychecks and we can pay for the retirement of our elderly. Hell, we could increase the length and generosity of their retirement and workers would still see bigger paychecks. And anyone who's in good physical and mental health and enjoys their job would be free to keep working as long past the official retirement age as they want.
The only way this wouldn't happen is if Americans decide that, no, they want even more income, and they're willing to shorten and impoverish the retirements of the elderly in order to get it. This is where inequality comes back into the picture. Time spent not working but still enjoying a decent standard of living is essentially the flip side of the income from time spent working: you can't redistribute one without redistributing the other. So a society in which everyone has access to a decent retirement will inevitably be a more egalitarian society as well.
Conversely, thanks to how horribly unequal wealth ownership is in this country, the drive to privatize retirement through stock instruments such as 401(k)s and the like is effectively a drive to redistribute access to a decent retirement up the income ladder.
So if your first-order goal in American politics is to insure that, for a small class of elites, the sky's the limit on how much wealth and status they can accrue, then yes: you're going to find it hard to provide everyone a decent retirement.