Older Workers: Demographic Trends Pose Challenges for Employers  
and Workers (16-NOV-01, GAO-02-85).				 
								 
Much public attention has been paid to the impending retirement  
of the large "baby boom" generation. The number of older workers 
will grow substantially over the next two decades, and they will 
become an increasingly significant proportion of all workers.	 
While older workers are less likely than younger workers to lose 
a job, when they do they are less likely than younger workers to 
find other employment. To retain older workers and extend their  
careers, some public and a few private employers are providing a 
variety of options, including offering flexible hours and	 
financial benefits, reducing workloads through the use of	 
part-time or part-year schedules, and job-sharing. Most employers
are not yet facing labor shortages or other economic pressures	 
requiring them to consider flexible employment arrangements	 
because the retirement of the baby boom generation will occur	 
gradually over the next several decades.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-85						        
    ACCNO:   A02468						        
  TITLE:     Older Workers: Demographic Trends Pose Challenges for    
Employers and Workers						 
     DATE:   11/16/2001 
  SUBJECT:   Economic analysis					 
	     Employment 					 
	     Retirement benefits				 
	     Employment discrimination				 
	     BLS Current Population Survey			 

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GAO-02-85
     
Report to the Ranking Minority Member, Subcommittee on EmployerEmployee
Relations, Committee on Education and the Workforce, House of
Representatives

United States General Accounting Office

GAO

November 2001 OLDER WORKERS Demographic Trends Pose Challenges for Employers
and Workers

GAO- 02- 85

Page i GAO- 02- 85 Older Workers Letter 1

Results in Brief 2 Background 5 A Growing Number of Older Workers Are in the
Labor Force 7 Older Workers Are Less Likely to Lose Jobs Than Younger

Workers, But More Likely to Exit the Labor Force if Job Loss Occurs 19 Some
Employers Provide Flexible Employment Arrangements for

Older Workers But Programs Are Not Widespread 23 Conclusions 32
Recommendations 34 Agency Comments and Our Evaluation 34

Appendix I Data on Employment of Older Workers 36

Appendix II Comments From the Equal Employment Opportunity Commission 38

Appendix III Scope and Methodology 40 Survey Data 40 Projection Methods 40
Private and Public Employer Information 41

Appendix IV GAO Contacts and Staff Acknowledgments 42 GAO Contacts 42
Acknowledgments 42

Tables

Table 1: A Comparison of the Distribution of Occupations Among Selected Age
Groups, 2000 11 Table 2: Occupations of Workers Age 55- 64 and 65- 74, 2000.
12 Table 3: Changes in the Occupational Distribution of Older

Workers, 1990- 2000. 15 Table 4: Job Loss and Re- employment Rates by Age,
2000 20 Contents

Page ii GAO- 02- 85 Older Workers

Table 5: Percentage of Persons Age 55- 74 Who Are Unemployed or Fully
Retired and Want a Job, 2000 23 Table 6: Examples of Flexible Employment
Programs That

Employers Are Offering Older Workers 25 Table 7: Earnings and Work Status of
Workers Age 55- 64 and 65- 74,

1999 36 Table 8: Selected Percentages of Workers in an Occupation That

Are Age 55 or Older, 2000- 08 36

Figures

Figure 1: Percentage of the Labor Force That Is 55 Years of Age and Older,
1950 -2025 3 Figure 2: Past and Projected Number of Workers Over Age 55,

1970- 2025 8 Figure 3: Labor Force Participation Rates for Older Workers, by

Sex, 1948 -2015 9 Figure 4: Projected Change in the Number of Workers 55
Years of

Age and Older by Major Occupation, 2000 and 2008 13 Figure 5: Percentage of
Workers That Are Age 55 Years and Older

in Major Occupations, 2000 and 2008 14 Figure 6: Education Levels of Older
Workers in the Baby Boom

Generation Compared to the Current Generation, 2000 17 Figure 7: Changes in
Annual Earnings by Age of Worker, 1989 and

1999 18 Figure 8: Reasons for Job Loss by Age of Worker, 2000 21

Abbreviations AARP American Association of Retired Persons ADEA Age
Discrimination in Employment Act of 1967 BLS Bureau of Labor Statistics CPS
Current Population Survey DROPS Deferred Retirement Option Plans DWS
Displaced Workers Supplement EBRI Employee Benefits Research Institute EEOC
Equal Employment Opportunity Commission ERISA Employee Retirement Income
Security Act of 1974 HRS Health and Retirement Study IRC Internal Revenue
Code IRS Internal Revenue Service SHRM Society for Human Resource Management

Page 1 GAO- 02- 85 Older Workers

November 16, 2001 The Honorable Robert E. Andrews Ranking Minority Member
Subcommittee on Employer- Employee Relations Committee on Education and the
Workforce House of Representatives

Dear Mr. Andrews: Much public attention has been paid to the impending
retirement of the unusually large ?baby boom? generation, comprised of those
individuals born between 1946 and 1964. According to Census Bureau
estimates, in 2019, when the last of the baby boomers have reached age 55,
nearly 29 percent of the total U. S. population will be age 55 and older,
compared with 21 percent today. Meanwhile, the Bureau of Labor Statistics
(BLS) projects that total labor force growth will slow from an average
annual rate of 1.1 percent between 1990 and 2000 to an annual rate of 0.7
percent between 2000 and 2025. 1

These developments pose potential problems for employers and the economy
generally, as the possible loss of many key experienced workers could create
shortages in skilled worker and managerial occupations, with adverse effects
on productivity and economic growth. To the extent that older workers
(employees age 55 and older) decide to work longer, this can mitigate the
slowing growth of the labor force and its attendant fiscal and economic
problems.

In light of the economic and human capital challenges posed by the
retirement of baby boomers, you asked us to (1) provide a current and
projected economic profile of older workers, (2) discuss the experience of
older workers who lose their jobs and seek reemployment, and (3) describe
the options that employers are providing to older workers who want flexible
employment arrangements and the financial incentives to keep older workers
from retiring.

1 Fullerton, Howard N. ?Labor Force Participation: 75 Years of Change, 1950-
1998 and 19982025,?

Monthly Labor Review (Dec. 1999), pp. 3- 12.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 85 Older Workers

To provide this information, we analyzed data from multiple years of the
Current Population Survey (CPS), the Displaced Workers Supplement to the CPS
(DWS), and the Health and Retirement Study (HRS). We also developed a
projection method, based on BLS methodology, for estimating the age and
occupational structure of the labor force and the relative wage structure in
2008. In addition, we interviewed human capital representatives of both
private and public sector employers, union officials, and pension and human
capital experts from consulting firms and various advocacy groups. We
consulted economists and other academics on these issues as well. Through
these interviews and from a survey of the literature on phased retirement
programs, we identified and interviewed 13 private employers and 10 public
employers to discuss the formal or informal job arrangements they made with
older workers to keep them on the job. Our work was conducted between
November 2000 and September 2001 in accordance with generally accepted
government auditing standards.

The number of older workers will grow substantially over the next two
decades, and they will become an increasingly significant proportion of all
workers. According to the CPS, there were 18.4 million workers over age 55
in the labor force in 2000, a number that BLS projects to 31.9 million by
2015. This expected increase is a consequence both of the aging of the baby
boom generation and a general trend in greater labor force participation
among older persons. Thirty percent of all persons over age 55 participated
in the labor force in 2000 and, according to BLS projections, this
percentage is expected to rise to 37 percent by 2015. If these projections
prove accurate, older workers will comprise nearly 20 percent of the total
labor force by 2015. (See fig. 1.) Older workers are employed in a diverse
group of occupations but are more likely than younger workers to be white-
collar managers or professionals. Our projections suggest that older workers
will become an increasing proportion of some occupations. For example, from
2000 to 2008 the percent of teachers older than age 55 will increase from 13
percent to 19 percent, and the percent of nurses and related occupations
older than age 55 will increase from 12 percent to 18 percent. (See app. I.)
Due to an increase in full- time employment and a change in the composition
of the older workforce toward white- collar jobs, older workers have
experienced substantial real earnings increases from 1989 to 1999 compared
with younger workers. Over this period, earnings increased by an aggregate
11 percent for workers age 55 to 74 compared with a 2 percent gain for
workers age 40 to 54. Results in Brief

Page 3 GAO- 02- 85 Older Workers

Figure 1: Percentage of the Labor Force That Is 55 Years of Age and Older,
1950 2025

Source: BLS.

While older workers are less likely than younger workers to lose a job, when
they do they are less likely than younger workers to find other employment.
Data from the 2000 Displaced Worker Survey shows that 9 percent of older
workers lost their jobs from 1997 to 1999, a rate that is less than the 11
percent of younger workers who lost their jobs over the same period of time.
However, 57 percent of older workers who lose their jobs retire, partially
or fully, following a job loss. 2 Once older workers fully retire, most do
not re- enter the labor force even for part- time work.

To retain older workers and extend their careers, some public and a few
private employers are providing a variety of options, including offering
flexible hours and financial benefits, reducing workloads through the use

2 For purposes of this report, we categorized persons as partially retired
if they classified themselves as retired but still were doing work for pay.
Individuals who classified themselves as retired and were not doing any work
for pay were categorized as fully retired. It should be noted, however, that
BLS does not define retirement or attempt to estimate the number of retired
individuals. Retirement typically means different things to different
people. To some, it may be a single event, while to others, it may occur
over a number of years as they decrease their hours worked and/ or change
jobs.

Page 4 GAO- 02- 85 Older Workers

of part- time or part- year schedules, and job- sharing. For example, one
large chemical manufacturer allows retirees to work up to a set maximum
number of hours per year on an as- needed basis, and a major food processing
firm hires older workers during peak months in their canning factories.
However, offering such options is not a widespread practice among private
employers and does not involve large numbers of workers at individual firms.
One survey of middle- and large- sized employers cites several reasons for
employers not implementing flexible employment programs, the most prevalent
being that they simply had not considered it. Other reasons cited included
pension regulations, corporate culture, and employment costs. For example,
current tax law governing at what age pension payments can be made and
whether employees earning a broad range of incomes are participating in a
companies? worker retention program can discourage both employers and older
workers from extending work beyond retirement eligibility. Public employers
appear to be doing the most experimentation to encourage the retention of
older workers. Some states, for example California and Ohio, have made major
efforts to retain older teachers in response to current or anticipated
teacher shortages. These efforts primarily involve pension incentives that
increase the financial attractiveness of continued employment to older
workers. However, some of these options might not be legally available to
private employers who are subject to restrictions on plan design that may
affect older worker retention programs.

Most employers are not yet facing labor shortages or other economic
pressures requiring them to consider flexible employment arrangements
because the retirement of the baby boom generation will occur gradually over
the next several decades. Thus, there is still time available to develop
sound policies, programs, and practices to respond to this demographic
challenge. The ERISA Advisory Council, which was established to advise the
Secretary of Labor on his or her duties under the Employee Retirement Income
Security Act of 1974 (ERISA), has already made recommendations to the
Secretary that may encourage employers to hire and retain older workers.
However, many of them concern issues outside of Labor?s jurisdiction,
requiring either action by other agencies or legislative changes for their
implementation. We are making a recommendation to the Secretary of Labor
concerning the formation of a broad interagency task force to develop
regulatory and legislative proposals addressing the issues raised by the
aging of the labor force, carefully balancing the concerns of older workers,
employers, and the general public.

Page 5 GAO- 02- 85 Older Workers

The maturation of the baby boom generation (persons born between 1946 and
1964) has progressed to the point where boomers will soon begin moving from
the traditional working ages to the ages when many people start to retire.
The first wave of the baby boom generation will start to turn age 65 in 2011
and the last of the boomers will be 65 in 2029. This development will lead
to significant changes in the ratio of the working age population (defined
as age 20 to 64) to the population age 65 or older. This ratio, called the
?aged dependency ratio? because it provides an estimate of how many workers
will be available to support each retiree, was 21 percent in 2000, or 5
working- age individuals for every person over age 65. As the baby boom
generation ages, the aged dependency ratio will rise. By 2030, it will reach
35 percent, meaning that there will be fewer than three persons of
traditional working age for every person age 65 or over.

The increase in the aged dependency ratio is not only occurring because of
the growing numbers of older persons. It is also due to the slowing growth
of the labor force of younger workers over the last decade, a trend that is
expected to continue. From 1950 to 1990, the labor force under 55 grew at an
average annual rate of 1.9 percent. From 1990 to 2000, the average annual
growth rate for this group was 1.0 percent, and BLS projects that from 2000
to 2025 labor force growth will slow to an annual rate of 0.3 percent.

Several recent changes in Social Security retirement policy could strengthen
incentives to work longer. Social Security provides monthly benefits to
qualified retired and disabled workers and their dependents, and to
survivors of insured workers. These benefits are the primary source of
income (more than 50 percent) for nearly 57 percent of the population age 65
and older. In April 2000, the practice of reducing Social Security benefits
when a beneficiary has earnings and has reached the normal retirement age
(currently 65 years and 4 months) was eliminated, 3 at least in part to
remove the disincentive to work. Also, the delayed retirement credit for
persons who first claim benefits after the normal retirement age is steadily
being increased until it reaches 8 percent per year in 2008. Prior to these
increases, those who chose to work beyond normal retirement age might
receive less Social Security over their lifetime because the start of their
benefit receipt was delayed. Some members of Congress have also

3 Prior to its elimination, beneficiaries age 65 to 69 lost $1 of benefits
for every $3 they earned above $17,000. Background

Page 6 GAO- 02- 85 Older Workers

put forward proposals that would raise normal retirement age for benefits
beyond the current schedule of increases, as well as proposals that increase
the early retirement age of 62. 4

Other federal laws also attempt to make work and the workplace more
hospitable for older individuals. The Age Discrimination in Employment Act
of 1967 (ADEA) promotes the employment of older persons based upon their
ability rather than age and prohibits age discrimination in employment. The
Equal Employment Opportunity Commission (EEOC) enforces ADEA as well other
federal statutes prohibiting employment discrimination. ADEA applies only to
firms with 20 or more employees, thus excluding a not insignificant segment
of the labor force. While some states have their own laws protecting older
workers in small businesses, these laws still may exclude some small
businesses. 5

As pension benefits are a key source of retirement income for many workers,
they can also influence the work decisions of older individuals. To
encourage employers to establish and maintain pension plans for their
employees, the federal government provides preferential tax treatment under
the Internal Revenue Code (IRC) for plans that meet certain requirements. 6
In exchange for preferential tax treatment, an employer is required to
design the pension plan within legal limits that are intended to improve the
equitable distribution and security of pension benefits. The Internal
Revenue Service (IRS) administers policies on pension distributions that are
set by the Congress in the IRC to ensure that the

4 The normal retirement age- the age at which retirees can receive full
Social Security benefits with no actuarial reduction- began increasing by 2
months per year starting in 2000. It will reach 66 in 2006 and then it will
begin increasing again by 2 months per year in 2017 until it reaches 67 in
2022.

5 For example, California and Illinois exempt firms with fewer than five
employees from their state laws. 6 Employee pension plans are customarily
classified into two major categories: defined benefit plans and defined
contribution plans. A defined benefit plan promises a retirement benefit
amount that is usually determined by salary and length of service. A defined
contribution plan specifies contributions to be made, but the benefits
depend on investment performance. In 1998, according to the Employee
Benefits Research Institute (EBRI), 20 percent of households had defined-
benefit coverage only; 57 percent had defined- contribution coverage only;
and 23 percent had both types of coverage. Our analysis of CPS data found
that 53 percent of the employed labor force in 1998 lacked a pension plan.
See Pension Plans: Characteristics of Persons in the Labor Force Without
Pension Coverage, (GAO/ HEHS- 00- 131, Aug. 22, 2000).

Page 7 GAO- 02- 85 Older Workers

benefits of all tax- qualified plans are apportioned in a nondiscriminatory
manner.

Many pension plans have features that encourage employees to retire at or
before age 65. Pension laws relating to defined benefit plans allow benefits
earned after the normal retirement age (generally, age 65) to accrue at a
lower rate. Furthermore, many defined benefit plans subsidize early
retirement benefits which tends to discourage employment after becoming
eligible for these benefits.

ERISA establishes certain minimum standards for private employee pension
plans. This law also created the ERISA Advisory Council to advise the
Secretary of Labor with respect to carrying out responsibilities under
ERISA. The Advisory Council has made recommendations to the Secretary of
Labor to consult and work with appropriate government agencies on pension
and welfare plan reforms that could help employers establish phased
retirement programs.

The number of older workers will grow substantially over the next two
decades and they will become an increasingly significant proportion of all
workers. This expected increase is a result of the aging of the baby boom
generation and a general trend in greater labor force participation among
older persons. Older workers are employed in a diverse group of occupations
but are a growing proportion of the workers in white- collar occupations. In
addition, our projections show that older workers may make relatively
greater gains in earnings than their younger counterparts between 2000 and
2008. 7

7 We projected the occupational distribution and earnings to 2008 since we
borrowed from BLS methodology and that is the year of their furthest
projections of occupations. A Growing Number of

Older Workers Are in the Labor Force

Page 8 GAO- 02- 85 Older Workers

The number of older workers will grow rapidly over the next two decades.
According to the BLS, in 2000, 18.4 million persons over age 55, or about
one- third of the over- 55 population, were in the labor force. 8 (See Fig.
2.) BLS estimates that there will be 31.8 million older labor force
participants in 2015, an average annual increase of 4.0 percent from 2000.
However, this rapid growth is expected to level off by the mid- 2020s. BLS
estimates that 33.3 million older persons will be in the labor force in
2025, an average annual increase of only 0.5 percent from 2015.

Figure 2: Past and Projected Number of Workers Over Age 55, 1970- 2025

Source: BLS.

8 The labor force consists of persons who are employed and unemployed
persons who are actively seeking work. Older Workers Will Be a

Growing Proportion of the Labor Force Over the Next Two Decades

Page 9 GAO- 02- 85 Older Workers

This expected increase is a result of the aging of the baby boom generation
and a general trend in greater labor force participation among older
persons. The oldest baby boomers are currently 55 years old, and the
youngest will turn 55 in 2019. The percentage of older persons who
participate in the labor force has been growing, especially among females
age 55- 64, a trend that is expected to continue. (See Fig. 3.) Currently,
30 percent of all persons 55 and older participate in the labor force, a
number that is expected to grow to 37 percent by 2015, according to
projections by BLS.

Figure 3: Labor Force Participation Rates for Older Workers, by Sex, 1948
-2015

Source: BLS.

This increase in labor force participation among older workers is primarily
driven by the growth in the number of older women and their labor force
participation rates. Labor force participation rates of women between the
ages of 55 and 64 have been steadily increasing from 42 percent in the
mid1980s to 52 percent in 2000. A further increase in the participation rate
to 61 percent is expected to occur by 2015, according to BLS. The labor
force participation rate of women age 65 and older is currently 9 percent.
This is up from the low point of slightly more than 7 percent in the mid-
1980s but

Page 10 GAO- 02- 85 Older Workers

is lower than the 10 percent levels of the 1950s. BLS projects the growth in
the participation rate in this age group to grow to 10 percent by 2015. 9

The labor force participation rates of males over age 55 have been stable
for several years and are projected to increase in the future. Older male
labor force participation hit a low point in the mid- 1990s that was part of
a downward trend that had been occurring for several decades. Since then,
the labor force participation rates of males between the ages of 55 and 64
have held steady at approximately 67 percent; BLS projects an increase to 69
percent in 2015. Labor force participation rates of males 65 and older also
held steady at about 17 percent during the 1990s and are projected to rise
to nearly 20 percent by 2015. 10

As the number of older workers grows, older workers will also become a
larger percentage of all workers. In 1950 and 1960, older workers comprised
17 percent and 18 percent of the labor force, respectively. (See Fig. 1.) As
the relatively large baby boom generation entered the workforce between 1960
and 1990, the proportion of older workers fell to 12 percent of the total as
the number of workers under age 55 swelled. Older workers now represent 13
percent of the total workforce, and BLS estimates that by 2015 they will be
about 20 percent of the total workforce.

Older workers hold jobs in a wide range of occupations that are somewhat
reflective of the occupations occupied by younger workers. (see table 1.)
Nearly the same percentage of workers in the age categories of 40 to 54, 55
to 64, and 65 to 74 are employed in white collar occupations (approximately
62 percent). The slight difference in the employment distribution among
these age groups is found in blue- collar and service occupations. Nearly 15
percent of workers age 65 to 74 are employed in service occupations compared
with 11 percent of workers age 40 to 54. Blue- collar work accounts for 26
percent of employment among workers

9 The increases in the labor force participation rates of older women have
been primarily attributable to the aging of women who have been working
since earlier ages. 10 For opposing viewpoints on this trend see Costa,
Dora, ?Has the Trend Toward Earlier Retirement Reversed?? and Quinn, Joseph,
?Has the Early Retirement Trend Reversed?? Costa questions the prediction
that workers will work later into life, citing the increasing attractiveness
of, and ability to pay for, retirement. Quinn counters with evidence that
earlier retirement has come to an end due to a new attitude toward working
later in life. Both papers prepared for presentation at the First Annual
Joint Conference for Retirement Research Consortium ?New Developments in
Retirement Research,? May 20- 21, 1999. Older Workers Are

Employed in a Broad Range of Occupations and Are a Significant Percentage of
Many

Page 11 GAO- 02- 85 Older Workers

age 40 to 54 and 23 percent for workers age 65 to 74. 11 The general shift
in the economy away from physically demanding jobs is present among workers
of all ages, but is far more pronounced among older workers as they age.

Table 1: A Comparison of the Distribution of Occupations Among Selected Age
Groups, 2000 Distribution of Occupations

(percent) a Occupation Age 30- 39 Age 40- 54 Age 55- 64 Age 65- 74

Executive, administrator, manager 15.5 18.0 17.2 16.1 Sales 10.6 10.7 11.6
15.5 Administrative support 12.8 13.7 13.9 15.4 Professional 15.7 17.4 16.6
14.5 Technicians 3. 9 3.4 2. 4 0.9

White Collar b 58.5 63.2 61.7 62.4 Production, craft, repair 12.5 11.7 9. 9
6.5 Farming, forest, fishing 2. 1 2.1 2. 8 5.8 Transportation 4.6 4. 0 4.7
5. 6 Machine operator, assembler 6. 2 5.6 5. 0 3.1 Laborers, handlers 3. 7
2.8 2. 7 2.2

Blue Collar c 29.1 26.2 25.1 23.2

Services d 12.5 10.8 13.2 14.5 a Percentages may not sum to 100 due to
rounding.

b For the purposes of this report we grouped white- collar, blue- collar and
service occupations together. White- collar occupations were defined as
executive, administrator, manager, sales, administrative support,
professional, and technical. c Blue- collar occupations were defined as:
production, craft, repair; farming, forestry, fishing, transportation,
machine operator and assembler, laborers and handlers. d Services were
separated from blue- collar and white- collar occupations since there was a
significant

amount of overlap between these two categories within the service category.
Services occupations were defined as private household, protective services,
food preparation, health services, cleaning and building services, and
personal services.

Source: March 2000 CPS.

Workers age 55 to 64 constitute a significant proportion of many occupations
as they are nearly 13.9 million members (11 percent) of the total workforce.
(See table 2.) The highest absolute numbers of older workers age 55 to 64
are in executive/ manager occupations (2.4 million or

11 Both of the aforementioned differences in the occupational differences
are statistically significant at the 95 percent level.

Page 12 GAO- 02- 85 Older Workers

12 percent of the total occupation) and professional occupations (2.3
million or 11 percent of the total occupation). Workers age 65 to 74
comprise much smaller percentages of occupations since most persons in this
age group have exited the labor force. Workers age 65 to 74 constitute less
than 4 percent of the all major occupational categories with the exception
of farming, fishing, and forestry.

Table 2: Occupations of Workers Age 55- 64 and 65- 74, 2000 Number of
workers Proportion of all workers in the

occupation that are a Occupation Age 55- 64 Age 65- 74 Age 55- 64 Age 65- 74

Executive, administrator, manager 2,376,268 553,003 12.0 2. 8 Professional
2,296,711 498,714 11.3 2. 4 Administrative support 1, 927,958 529,227 10.5
2. 9 Sales 1, 610,556 533,841 10.5 3. 5 Technicians 331,563 32,138 7. 4 0.7
Production, craft, repair 1, 367,729 223,508 9. 4 1.5 Machine operator,
assembly 695,672 105,748 9. 3 1.4 Transportation 653,316 193,120 11.9 3. 5
Farm, forest, fishing 391,057 197,984 12.5 6. 3 Laborers, handlers 374,737
74,724 7. 2 1.4 Services 1,829,659 499,328 10.6 2. 9

All occupations 13,855,226 3, 441,334 10.6 2. 6

a Figures shown in percent. Source: March 2000 CPS.

Between 2000 and 2008, the number and percentage of workers over age 55 will
increase in all major occupational categories, according to our projections.
(See Figs. 4 and 5.) 12 The largest change should occur in whitecollar
occupations. Among executives/ managers, the percentage of workers in this
occupation who are over 55 is projected to grow from 15 percent to 23
percent. The percentage of the workforce that is over age 55 in professional
occupations should also grow substantially from 14 percent to 19 percent.
The smallest change should occur in employment in service occupations as the
percentage of the workforce older than age 55 employed in the service sector
grows from 13 percent to 14 percent. In line

12 We used a methodology developed by BLS to make our projections. We
estimate the replacement needs for occupations based upon 5- year age
cohorts from 1988- 93 and 199498 and project forward to 2003 and 2008. Thus,
the accuracy of these projections relies on recent historical trends
continuing into the future.

Page 13 GAO- 02- 85 Older Workers

with these major occupational changes, certain specific occupations will
increasingly rely on older workers. For example, from 2000 to 2008, the
percent of teachers older than age 55 will increase from 13 percent to 19
percent, and the percent of nurses and related occupations older than age 55
will increase from 12 percent to 18 percent. (See app. I.)

Figure 4: Projected Change in the Number of Workers 55 Years of Age and
Older by Major Occupation, 2000 and 2008

Source: CPS and GAO projections.

Page 14 GAO- 02- 85 Older Workers

Figure 5: Percentage of Workers That Are Age 55 Years and Older in Major
Occupations, 2000 and 2008

Source: CPS and GAO projections.

As workers age, their occupational composition moves towards whitecollar and
service occupations and away from physically demanding occupations.
According to our projections, the composition of the older workforce will
shift further from blue- collar to white- collar occupations in the near
future. Between 2000 and 2008, the proportion of workers age 55 to 74 in
managerial/ administrative and professional/ technical occupations will
increase by 2.9 percent and 1.6 percent, respectively, while the proportion
in blue collar and service occupations will decrease. (see app. I.)

The change in the occupational composition of older workers into less
physically demanding occupations is supported by an analysis of changes in
occupations of related age groups, as shown in table 3. Group I consists of
individuals age 45 to 54 in 1990 and individuals age 55 to 64 in 2000. Group
II consists of individuals of age 55 to 64 in 1990 and 65 to 74 in 2000. In
2000, both groups I and II had fewer individuals in the more physically
Older Workers

Occupational Composition Moves Toward WhiteCollar Jobs as They Age

Page 15 GAO- 02- 85 Older Workers

demanding occupations of production, craft and repair, machine operation,
and assembly; they also had a greater number of older workers in the white-
collar and service occupations in 2000. 13 Part of this shift likely
occurred because as workers age they can experience health problems that
make their jobs more difficult to perform and, therefore, they choose to
move into less physically demanding jobs. Also, the composition of the labor
force changes because of differential retirement rates and those who
continue to work to older ages are more likely to be white- collar workers.
14

Table 3: Changes in the Occupational Distribution of Older Workers, 1990-
2000. Group I (percent)

Group II (percent)

Occupation Age 45- 54

year 1990 Age 55- 64

Year 2000 Percentage

Change Age 55- 64

year 1990 Age 65- 74

year 2000 Percentage

change

Executive, administrator, manager 15.9 17.2 +8.1 14.4 16.1 +11.8
Professional 14.6 16.6 +13.2 14.0 14.5 +3.6 Administrative support 15.8 13.9
-12.0 15.3 15.4 +1.0 Sales 11.4 11.6 +1.8 12.4 15.5 +25.0 Technicians 2. 9
2.4 -17.2 1. 8 0.9 -50.0 Production, craft, repair 12.4 9. 9 -20.1 11.2 6. 5
-42.0 Machine operator, assembly 6.5 5. 0 -23.1 6. 8 3.1 -51.5
Transportation 4.6 4. 7 +2.2 4.5 5. 6 +54.4 Farm, forest, fishing 2. 4 2.8
+16.7 3. 9 5.8 +48.7 Laborers, handlers 2. 6 2.7 +3.8 2. 7 2.2 -18.5
Services 10.9 13.2 +21.0 13.0 14.5 +11.5

Total a 100.0 100.0 100.0 100.0

a Numbers may not sum to 100 percent due to rounding. Source: March 1990 and
2000 CPS.

The shift toward white- collar occupations is also partially explained by
differences in educational attainment among the baby boom generation

13 The percent changes in the distribution of occupations for all workers
from 1990- 2000 was as follows: Managers/ Administrators (12.3%- 14.6%),
Professional (13.0%- 15. 1%), Technical (3. 2%- 3.3%), Sales (12.4%- 12.2%),
Administrative Support (15. 7%- 13. 8%), Services (13.3%- 13.9%),
Production/ Craft/ Repair (11.8%- 10.7%), Machine Operator/ Assembly (6. 8%
5.6%), Transportation (4. 2%- 4.1%), Laborer/ Handler (4. 5%- 4. 2%),
Agriculture/ Forest/ Fishing (2. 9%- 2.5%).

14 Blue- collar workers are more likely to leave the labor force due to
health problems as evidenced by their disproportionate participation in the
Disability Insurance program.

Page 16 GAO- 02- 85 Older Workers

and the cohort proceeding them. (See Fig. 6.) Fifty- seven percent of
persons who are age 40 to 54 15 have at least some college education (29
percent have a college degree) compared with 42 percent of individuals age
55 to 74 (21 percent have a college degree). Moreover, only 11 percent of
individuals age 40 to 54 lack a high school diploma compared with 22 percent
of persons age 55 to 74. The greater level of educational attainment among
the baby boomers may lead to more employment opportunities as they age. They
may have a broader diversification of jobs available to them compared to the
current generation of older workers.

15 The baby boom generation actually encompasses persons age 36 to 54 since
we are using year 2000 data. However, the age group was presented as 40 to
54 for consistency with other numbers in the report.

Page 17 GAO- 02- 85 Older Workers

Figure 6: Education Levels of Older Workers in the Baby Boom Generation
Compared to the Current Generation, 2000

Source: CPS.

Between 1989 and 1999, older workers experienced larger percentage gains in
median earnings than younger workers. 16 (See Fig. 7.) Adjusted for
inflation, workers between the ages of 55 and 64 and workers between 65 and
74 had median earnings increases of 9 percent and 19 percent, respectively,
for the 10- year period- compared with increases of 2 percent and 4 percent
for workers age 40 to 54 and 30 to 39, respectively. These

16 See app. I for a detailed table on earnings and work status by
occupation. Older Workers? Earnings

Have Risen Faster Than Younger Workers? Earnings

Page 18 GAO- 02- 85 Older Workers

earnings increases were primarily driven by a greater number of older
workers working full- time instead of part- time (57 percent in 1989 versus
63 percent in 1999) and a movement in the occupational composition toward
higher paying white- collar jobs (See tables 3 and app. I). Improvements in
the economy during the last 15 years likely offered older workers the
opportunity to move into full- time employment as labor shortages increased
the demand for their services. During the economic expansion of the mid- to
late- 1980s, the unemployment rate declined from 7 percent in 1985 to 5
percent in 1989; by comparison, in the mid- to late1990s the unemployment
rate declined from 6 percent to 4 percent.

Figure 7: Changes in Annual Earnings by Age of Worker, 1989 and 1999

Source: CPS.

2000 Dollars

1989 1999 0

5,000 10,000

15,000 20,000

25,000 30,000

35,000 40,000

65- 74 55- 64 40- 54 30- 39

$28,882 $27,816

$30,598 $31,056 $25,730

$27,950 $10,431

$12,422

Page 19 GAO- 02- 85 Older Workers

According to our projections, workers between the ages of 55 and 74 will
continue to make gains in their earnings that exceed those of their
counterparts who fall between the ages of 40 and 54. Currently, workers age
55 to 64 and workers age 65 to 74 earn 93 percent and 46 percent,
respectively, of what workers age 40 to 54 earn. We project these numbers to
rise to 111 percent and 67 percent, respectively, by 2008. These relative
gains are tied to the change in the composition of the older workforce to
higher paid white- collar occupations, while younger workers? occupational
composition is projected to change to more blue- collar and service
occupations.

While older workers are less likely than younger workers to lose a job,
older workers who do lose a job are somewhat less likely than younger
workers to return to work. Older workers and younger workers tend to lose
their jobs for similar reasons. However, many older workers who lose their
jobs choose to retire following the job loss. Some older workers who have
not yet fully retired do seek transitional or ?bridge? employment. But once
fully retired, relatively few are interested in returning to work. The
desire to return to work among fully retired older persons who have lost a
job varies according to education and race. Although small in percentage
terms (1. 3 percent), it is fairly large numerically. In 2000, there were
more than three- quarters of a million persons age 55 to 74 who were either
unemployed and looking for work or fully retired and wanting a job.

According to data from the Displaced Workers Supplement (DWS) to the CPS,
older workers were somewhat less likely than younger workers to lose their
jobs between 1997 and 1999. 17 (See table 4.) However, older workers who did
lose their jobs were significantly less likely than younger workers to be
re- employed. Thirty- nine percent of persons age 55 to 74 who lost their
jobs were not re- employed as of February 2000, 18 compared with 19 percent
of persons between age 40 and 54. Those who did seek reemployment and found
jobs reported job search times that were

17 By contrast, BLS examined job loss from 1981- 1996 among workers with 3
or more years of tenure and found that job loss rates were fairly similar
among workers 25- 54 and 55 years and older. Moreover, job loss rates did
not vary substantially among the age groups during the economic downturns of
the early 1980s and early 1990s. For more information see Hipple, Steve,
?Worker Displacement in the Mid- 1990s,? Monthly Labor Review, (July 1999),
pp. 15- 32.

18 February 2000 was the date of DWS data collection. Older Workers Are

Less Likely to Lose Jobs Than Younger Workers, But More Likely to Exit the
Labor Force if Job Loss Occurs

Older Workers Lose Their Jobs Less Frequently But Are Less Likely to be
ReEmployed Than Younger Workers

Page 20 GAO- 02- 85 Older Workers

somewhat comparable to their younger counterparts. The median job search
times for workers age 40 to 54 and 55 to 74 was four weeks. However, the
average 12 weeks time workers age 55 to 74 needed to search for new
employment was 3. 6 weeks longer than for workers age 19 to 39 and 1. 3
weeks longer than for workers age 40 to 54. This indicates that there is a
segment of the older workforce that incurs more prolonged job searches
relative to younger persons.

Table 4: Job Loss and Re- employment Rates by Age, 2000 Age 19- 39

Age 40- 54

Age 55- 74

Percent of workers in each age category losing job in past 3 years (1997-
1999) 11.7 9. 4 8.8 Percent of workers in each age category not re- employed
by 2/ 2000 15.7 19.0 38.7 Percent of workers in each age category losing job
and not re- employed by 2/ 2000 as a percent of the total labor force 1.8 1.
8 3.4

Of those workers re- employed by 2/ 2000:

Median number of weeks between jobs 3.0 4. 0 4.0 Average number of weeks
between jobs 8.4 10.7 12.0

Of those workers not re- employed:

Percent unemployed 50 57 27 Percent not in labor force- retired 0 3 57
Percent not in labor force- disabled 2 4 4 Percent not in labor force- other
47 37 12

Source: DWS.

Older workers and younger workers tend to lose their jobs for similar
reasons. According to data from the DWS, older workers are somewhat more
likely than younger workers to lose their jobs due to plant closures or
plant relocation (31 percent compared with 24 percent, respectively) and
somewhat less likely to lose their jobs due to insufficient work (17 percent
compared with 22 percent). (See Fig. 8.) The DWS asks respondents whether
they lost their jobs due to their position or shift being abolished,
completion of a seasonal job, failure of a self- operating business, or
another reason. The responses of older and younger workers were not
significantly different.

Page 21 GAO- 02- 85 Older Workers

Figure 8: Reasons for Job Loss by Age of Worker, 2000

Source: DWS.

Though older workers are not more likely to lose a job, a job loss
potentially has more severe consequences for older workers. Older workers
tend to have greater tenures in their jobs and may experience a larger loss
in earnings upon re- employment, compared with younger workers. 19 Moreover,
the potential loss of health care benefits following a job loss could be
more problematic for older workers because of the positive correlation
between greater health problems and aging. 20

19 The discussion of the effects of job loss on older workers was
paraphrased from Couch, Kenneth A. ?Late Life Job Displacement,? The
Gerontologist, Vol. 38, No. 1 (1998), pp. 7- 17. 20 Older workers appear to
place a high value on health insurance. Older male workers who had retiree
health insurance were 68 percent more likely to retire compared with their
counterparts without this benefit. See Rogowski, Jeanette and Lynn Karoly,
?Health

Insurance and Retirement Behavior: Evidence from the Health and Retirement
Survey,?

Journal of Health Economics, (2000), pp. 529- 539. For information on the
current status of retiree health benefits see Retiree Health Benefits:
Employer- Sponsored Benefits May Be Vulnerable to Further Erosion, (GAO- 01-
374).

Page 22 GAO- 02- 85 Older Workers

For older workers, the likelihood of being hired by a new employer varies
according to several factors- the compensation level, mix of wages and
benefits, skill requirements, working conditions, and hours of work-
associated with the new employer and job. For example, a firm whose wages
are highly correlated with firm- specific experience will hire fewer older
workers. Firms with these types of compensation structures usually require
that skills be developed internally on the job. Moreover, these types of
firms tend to encourage earlier exits of older workers through their
payments of pension benefits. Occupations that require extensive computer
use also tend to hire fewer older workers possibly due to perceptions that
older persons have difficulty adapting to new technologies. Finally, jobs
that require night and evening shifts hire fewer older workers. 21

According to the March 2000 CPS, 768,000 persons age 55 to 74 were either
unemployed and seeking a job (520,000 persons), or fully retired and said
they wanted a job (248,000 persons). Unemployment rates for most groups of
older workers are low and vary somewhat by educational level and by race. 22
In 2000, the unemployment rate for all workers over age 55 was 2.8 percent.
However, non- high school graduates had an unemployment rate of 5 percent,
which was more than three times as high as college graduates. 23 (See table
5.) The unemployment rate for blacks was 4.1 percent and for Hispanics and
other ethnic groups 5. 3 percent, compared with an unemployment rate of 2.5
percent among whites. Furthermore, once older Americans fully retire, most
do not want to return to work. About 45 percent (or 18. 4 million persons)
of all persons between age 55 to 74 were fully retired. These individuals
are not doing any work for pay and have categorized themselves as ?retired.?
When questioned about

21 Hirsch, Barry T., David A. Macpherson, and Melissa A. Hardy.
?Occupational Age Structure and Access for Older Workers,? Industrial and
Labor Relations Review, Vol. 53, No. 3 (April 2000), pp. 401- 418.

22 Even with the recent economic slowdown, unemployment rates remain at low
levels especially for older workers. In August 2001, the overall
unemployment rate was 4.9 percent and the unemployment rate for persons over
55 was 3.0 percent.

23 In terms of the total number of unemployed persons, more high school
graduates (207, 419) are unemployed than non- high school graduates
(116,396) because the former group is larger and has a higher labor force
participation rate. More Than Three- Quarters

of Million Persons Age 55 to 74 Who Do Not Have Jobs Want to Work

Page 23 GAO- 02- 85 Older Workers

whether they wanted a full- time or part- time job, only 1.3 percent
responded ?yes.? 24

Table 5: Percentage of Persons Age 55- 74 Who Are Unemployed or Fully
Retired and Want a Job, 2000 Total age group, 55- 74 Percent in

labor force Percent of labor force unemployed Percent

fully retired Percent of fully

retired who want a job

Males 19,130,000 50 3. 2 41 1.5 Females 21,940,000 36 2. 7 48 1.3 No high
school diploma 8, 770,000 27 5.0 50 1. 0 High school diploma 15,000,000 40
3. 4 48 1.0 Some college 8, 660,000 48 2.7 43 2. 4 College degree 8,650,000
58 1.6 36 1. 5 White (non- Hispanic) 32,850,000 43 2. 5 46 1.2 Black 3,
960,000 37 4.1 43 3. 1 Hispanic and other 4, 270,000 43 5.3 37 0. 8

Totals (percent) 43 3.0 45 1. 3 Total a (number) 41,080,000 17,579,000
520,000 18,441,000 248,000

a In addition to the labor force and the retired, others in the age group
are disabled or have exited the labor force for other reasons. Data are not
available on the percentage of these groups that would like a job. Totals
may not match due to rounding.

Source: March 2000 CPS.

Public and private employers are using an array of arrangements- including
rehiring retirees, reduced work schedules, and allowing jobsharing- to
retain and extend the careers of older workers. However, survey data and
interviews with employers suggest that few of these arrangements are
widespread among private employers or involve large numbers of workers at
individual firms even though the majority of older workers are interested in
them. Employers cite several reasons for not implementing programs, but the
most prevalent is that they simply have not considered doing so. While
acknowledging the importance of the issue, union officials we spoke with
said that they have not addressed these issues broadly in collective
bargaining agreements due to a lack of interest on the part of employers
generally and difficulties in establishing flexible schedules in many
manufacturing settings. Public employers

24 This suggests that once workers retire, it may be difficult to entice
them back into the labor force. Thus policies geared toward extending the
careers of older workers might be effective if they are targeted towards
those employees still in the labor force, rather than those older workers
who have already fully retired. Some Employers

Provide Flexible Employment Arrangements for Older Workers But Programs Are
Not Widespread

Page 24 GAO- 02- 85 Older Workers

appear to be experimenting more with these programs than private employers.
For example, large efforts to retain older workers are being made in some
states in response to teacher shortages. These efforts primarily involve
pension incentives that make work financially attractive for older
employees.

Some employers and employees are experimenting with flexible employment
arrangements that would allow older workers to continue to work. We found
that flexible employment arrangements come in many different forms,
including part- time work, seasonal or part- year work, consulting or
contracting for limited periods of time, or a reduction of job
responsibilities. 25 (See table 6.) For example, a large retail drug store
chain accommodates older workers by offering them part- time or partyear
schedules and allows them to work in multiple locations throughout the
country. Under this approach, an older worker can work in New York during
the spring and summer and in Florida during the fall and winter. A large
chemical manufacturer has established an in- house Retiree Resource Corps
that serves as a clearinghouse for matching retirees? skills and the
company?s employment needs for retirees who wish to work on a temporary
basis. Retirees must separate from the company for 6 months prior to entry
into the program and are limited to less than 1,000 hours of work per year.
26 Employees who work more than the maximum have their pension benefits
ceased and must terminate from the program to have their benefits
reinstated. A large fruit canning employer hires older workers on a part-
year basis to work in their canning factory that operates from July to mid-
September. The employer says that older workers are more likely to be
available for the part- year work than younger workers who are more
interested in full- time jobs. A needle manufacturer has been successful in
recruiting older workers by allowing them to choose the days they want to
work.

25 Flexible work arrangements are often termed ?phased retirement? or
?bridge jobs.? Both of these terms refer to the transition period from full-
time work to full- time retirement through a change in employment status or
job responsibilities.

26 Under ERISA, an employer who sponsors a pension plan may not exclude
workers from pension coverage for failure to perform a minimum period of
service, if they have worked 1,000 hours in a year. Private Employers Are

Using Some Arrangements to Retain Older Workers and Rehire Retirees, But Use
Is Not Widespread

Page 25 GAO- 02- 85 Older Workers

Table 6: Examples of Flexible Employment Programs That Employers Are
Offering Older Workers Employer description Type of program( s) Number of
participants

Designs and tests space systems Work part- time Leave of absence prior to
retirement Rehire retirees part- time or as contractors

Not available Retail drug stores Work part- time or part- year

Work in multiple locations throughout the year

15 percent of company employees are 50 or older

Fruit canning plant Work part- year 28 percent of employees are age 55 or
older Food products Rehires retirees 200 (mainly drivers) Information
services Rehires retirees An estimated 50 percent of retirees have worked

in the program since its inception. Communication services Retirees are used
to establish new company

ventures overseas Company survey found 725 retirees who would like to
participate a

Insurance Informally rehire retirees, typically on a parttime basis 50- 60
Aerospace Rehire retirees for up to 999 hours per year 20- 40 Temporary
services Increased efforts to recruit older workers 25 percent of workforce
consists of older

workers Chemical manufacturer Rehire retirees for up to 999 hours per year
300 Investments Informally rehire retirees to fill specific

company needs Not available Medical equipment Reduction of work schedule
over a 3- year

period prior to retirement Less than 10 Needle manufacturer for various
industries. Allows workers to choose the days they

want to work Average age of their 35 employees is 73 years. a Actual number
of participants in the program is not available.

Though they exist, flexible employment arrangements are not yet widespread
in the private sector. According to our interviews with experts,
consultants, and employers, in many instances these arrangements or programs
are provided on only an ad hoc basis and to limited groups of employees. The
employees involved in these arrangements tend to be skilled workers with an
expertise for which an employer has a special need. While these programs can
be expensive, some firms have shown they are willing to pay to retain the
more highly skilled employees who are hardest to replace.

Survey data on the extent and nature of flexible employment arrangements --
at least in large private sector firms -- also supports our finding that
such programs are often limited in scope and not widespread. According to a
study by Watson Wyatt, a large human capital consulting services firm, 16
percent of employers participating in their survey offer some type of
flexible employment arrangement. However, they defined such an arrangement
as any type of accommodation that was being made

Page 26 GAO- 02- 85 Older Workers

to an older worker either on a programmatic or individual basis. The
American Association of Retired Persons (AARP) and the Society for Human
Resource Management (SHRM) also conducted a study of flexible employment
programs and estimated that about 2 percent of employers offer such
arrangements to older workers. Neither of these studies is nationally
representative. 27

While acknowledging the importance of the issue, unions we spoke with have
not yet addressed flexible employment programs broadly in collective
bargaining agreements due to a lack of interest on the part of employers
generally and difficulties in establishing flexible schedules in many
manufacturing settings. We spoke with officials from unions representing
workers in the telecommunications industry and manufacturing industries like
automobiles and aerospace, who said that flexible employment programs for
older workers are not yet a major issue for many unions. A union official in
the manufacturing industry said flexible employment programs may be
difficult to establish because for many production processes, the work
environment tends to require team production from employees on full- time
schedules. A union official in the telecommunications industry said that
unions have proposed some flexible employment arrangements in bargaining,
but they say employers have not shown an interest because they do not yet
see worker retention as an important issue.

Evidence suggests that at least some middle- and large- sized employers
currently do not see a need for flexible employment programs, although this
could change in the future. According to the Watson Wyatt survey, 70 percent
of companies do not offer phased retirement programs to older workers
because they simply have not considered it. 28 Other reasons given for not
offering programs were the programs? incompatibility with corporate culture
(16 percent), restrictions on in- service distributions (14 percent),
employment costs (13 percent), and productivity concerns (9

27 The Watson Wyatt study was conducted on their clients who tend to be
middle- to largesized employers who would be more likely to offer programs.
The AARP study was focused on a small sample of employers that were
identified by Working Woman magazine to be employee- friendly places to
work.

28 A survey by William M. Mercer consulting firm yielded similar responses.
Sixty- five percent of employers said they were not offering phased
retirement because it was not a priority for them. Other reasons were that
the company preferred to make individual arrangements (53%), lack of
employee interest (11%), legal/ administrative issues too complex (4%), and
too costly (2%).

Page 27 GAO- 02- 85 Older Workers

percent). However, 28 percent of the employers who do not offer phased
retirement indicated that they have a moderate to high interest in doing so
over the next 2 to 3 years. Moreover, 70 percent of the employers surveyed
said that phased retirement programs may be a solution to labor shortages
brought on by demographic and economic change.

The hesitancy on the part of employers to offer flexible employment programs
appears to be at odds with the desire of older employees to have the option
of participating in such programs, and thus possibly extending their work
lives. According to 1996 data from the Health and Retirement Survey, 56
percent of persons age 55 to 65 would prefer to gradually reduce their hours
of work as they age, but only 16 percent of full- time workers in this age
group said their employers would be willing to allow them to reduce their
hours. Another survey of workers age 54 to 74 who were employed in their
career occupations found that 48 percent of workers wanted to work
significantly fewer hours- citing workload and job demands (41 percent) and
financial factors (28 percent) as their reasons for working more hours than
they would prefer. 29 A reduction in work hours seems to be a fairly common
desire: 71 percent of retirees who have returned to work said the reason
they initially retired was due to a lack of a more flexible work schedule.
Furthermore, this option seems to be less available to rank and file
workers, with managers and professionals more likely to believe a reduction
in hours was possible (64 percent) than were workers in service and
production occupations (31 percent).

Some public sector employers have been very active in initiating broad
programs that provide incentives for older workers to stay on the job.
Driven in large part by teacher shortages in many public school districts,
state and local government employers have implemented programs that provide
incentives for older employees to remain on the job. In many instances,
these incentives were created by redesigning their state- defined benefit
pension plans to include Deferred Retirement Option Plan (DROP) features
that allow a pension participant at an eligible retirement age to

29 Moen, Phyllis, et. al. ?The Cornell Retirement and Well- Being Study,?
Cornell University, (2000). Some Public Sector

Employers Have Undertaken Large Efforts to Retain Older Employees

Page 28 GAO- 02- 85 Older Workers

have pension benefits start even though he or she continues to work. 30
These programs also include other pension plan revisions as well. At the
state level, Arkansas, California, Louisiana, and Ohio have all adopted
incentives for older teachers to stay on the job rather than retire.

A growing number of state and local public employers have implemented, or
are considering implementing, DROP pension features as incentives to
encourage older employees to remain on the job. 31 Although employers have
used these for other public employees like firefighters or law enforcement
personnel, many have focused on the retention of elementary and secondary
public school teachers. For example, Arkansas has a DROP program in which
all teachers who meet length- of- service requirements can have 70 percent
of their monthly pension payments deposited into an account that is payable
as a lump sum along with other options for payment. 32 Teachers can stay in
the DROP program for up to 10 years. The state also allows teachers who are
eligible for retirement to draw their full pension and a full salary if they
work in one of four subject areas deemed to have a critical shortage of
teachers (math, science, foreign language, and special education) and if
they separate from employment for 30 days. 33

Louisiana has a variety of programs to encourage older teachers to stay on
the job, and 4,300 teachers participated in them last year. The DROP

30 Under a DROP, instead of paying a pension benefit directly to the
participant, it is placed in a separate account in the individual?s name.
This individual account is also invested so that when the participant ceases
employment and accepts retirement, he or she receives the accumulated
account balance in addition to the ongoing pension benefit. DROPs allow a
pension participant, generally for a fixed maximum period, to have his or
her pension benefits start on a particular date even though he or she
continues to work with the employer providing the pension. After that
period, either the participant is expected to retire or the pension payments
stop until the participant actually retires. By allowing a pension
participant to gain access to or be credited with pension benefits while
still working, DROPs remove a key incentive for older workers to retire.

31 One organization of public employers identified over 20 public entities
using DROPs. DROP programs are not always established with the intention of
extending workers careers. In some cases, DROP programs are used
specifically to get people to retire at a certain age. This type of DROP
program has been used for police and firefighters in Florida.

32 The Arkansas program was not started with the intention of encouraging
older teachers to stay on the job even though it has served that purpose. 33
States can set their own length of time for what constitutes a break in
service before someone returns to work and draws salary and pension payments
before the pension plan?s normal retirement age. The length of time for a
break in service is supposed to constitute a clear separation of employment.
States have chosen different time periods to meet this requirement.

Page 29 GAO- 02- 85 Older Workers

program has been popular among the teachers because they can earn a lump sum
in the range of $70,000 to $80, 000 in 3 years. Two- thirds of eligible
teachers participate in the DROP program and may participate for up to 3
years, after which they can continue working and will resume earning pension
credits in their defined benefit system. The myriad of other Louisiana
programs established to retain or attract retired teachers are being phased
out and replaced with one program that allows retired teachers to earn their
full pension while continuing to teach after a 12month break in service.

Some public employers are using other pension incentives to retain teachers.
For example, facing a projected shortfall of 300,000 teachers over the next
decade, the California legislature enacted several measures modifying the
state teacher pension plan to encourage older teachers to continue to work.
Starting in 2001, teachers who retire and then separate from employment for
1 year can return to teaching and earn a full salary while continuing to
receive full pension payments. In addition, pension benefits have been
enhanced in 3 ways: a longevity bonus of up to $400 per month has been added
for 30 to 32 years of service; a 0.2 percent addition to the pension benefit
has been granted for each year beyond 30 years of service; and 2 percent of
salary is paid into a supplemental retirement account which is then payable
as a lump sum. 34

Nearly 10 percent (17,000 teachers) of Ohio?s teaching workforce consists of
rehired retirees. Ohio teachers can draw a full salary and full pension
benefits after a 2- month break in service. This provision also applies to
other Ohio public employees in the event of a future shortage of employees.

Internal Revenue Code requirements regarding pensions may discourage private
employers from adopting DROP plans and other programs that could encourage
workers to extend their employment after retirement eligibility. In 2000,
the ERISA Advisory Council identified current ERISA and IRC regulations that
could constrain private employers in implementing flexible employment
arrangements, including regulations

34 This supplement does not reduce the benefit paid by the defined benefit
pension plan. All participants that are covered by the pension plan are
receiving this supplement, not only older teachers. Federal Regulations May

Inhibit Private Employer Use of DROP Plans

Page 30 GAO- 02- 85 Older Workers

prohibiting in- service distributions of defined benefit pension benefits
and rules governing nondiscrimination. 35

Pension regulations prohibiting in- service pension benefit distributions
can discourage the employer?s formation of DROP programs. Defined benefit
pension plans sponsored by private employers are not allowed to pay pension
benefits to older workers who become eligible for retirement income before
the plan?s normal retirement age. Therefore, it would be difficult, if not
impossible, for a private sector employer to provide a defined benefit DROP
plan to workers who are younger than the pension plan?s normal retirement
age. 36 To address this issue, the Council recommended relaxing the IRS
rules on in- service distributions to facilitate the formation of phased
retirement plans, although concern was expressed by some witnesses that
workers might outlive their retirement savings by beginning benefits at an
earlier but lower rate. 37

The ERISA Advisory Council also found that federal regulations governing
nondiscrimination in pension benefits or contributions can restrict
employers from offering phased retirement programs. For example, some
employers reported to the Council that they did not establish flexible
employment programs because of concerns with violating federal pension
regulations governing nondiscrimination in benefits or contributions. The
concerns are based on the likelihood that a higher percentage of highly
compensated employees would be participating in the programs because their
skills are more desirable. To the extent that older workers are more likely
to be owners or highly compensated employees than younger workers, a DROP
plan could disproportionately include the employer?s highest paid employees.
In such a case, the employer?s pension plan could be deemed as
discriminatory and potentially lose its tax- qualified status. To alleviate
these concerns, the Council recommended that the IRS relax

35 Advisory Council Working Group Report on Phased Retirement, November 14,
2000. 36 The issue with in- service distributions would extend to employers
who sponsored defined benefit plans and wished to set up other phased
retirement programs. In this case, workers eligible for early retirement
benefits would have to choose between continuing to work for the same
employer or collecting their benefits. The extent of compensation depends on
the structure of pension benefits, but often the increase in benefits that a
worker earns for continuing to work past the full eligibility age is not
sufficient to compensate them for the foregone benefits. Some older workers,
of course, can avoid these restrictions by taking early retirement and
working for a new employer while collecting pension benefits from their
previous employer?s plan.

37 Advisory Council Working Group Report on Phased Retirement, November 14,
2000.

Page 31 GAO- 02- 85 Older Workers

its rules on nondiscrimination if the intent of the plan amendment was
clearly not to be discriminatory. 38 Recognizing the complexity of this
issue, the ERISA Advisory Council also suggested that the Secretary of Labor
organize a task force to focus on the obstacles within ERISA and other
relevant federal laws that inhibit private employers from instituting DROPs.

A variety of factors contribute to discouraging the continued labor force
participation of workers after a certain age. These factors include the
following:

 Some employers may have negative perceptions of older workers and
discriminate. Past surveys have found that some managers possess negative
perceptions about the productivity of older workers. For example, managers
have expressed a perception that age reduces workers? physical stamina and
ability to learn new skills. 39 Under the ADEA, it is illegal to
discriminate in employment on the basis of age, but evidence suggests that
such discrimination does still occur. In 2000, the EEOC received 16,000
complaints of age discrimination, with nearly 3,000 merit resolutions and
cumulative monetary damages of $45 million. Because some employers might
seek to avoid hiring older workers because of potential litigation, the
ERISA Advisory Council proposed that an interagency task force be convened
to determine if any of the laws dealing with older workers? pension
benefits, including the ADEA, the IRC, and ERISA, need to be amended in
order to encourage the continued development of flexible retirement
alternatives for older workers. 40

 Employers perceive higher costs associated with hiring older workers.
Employers may feel that it is more difficult to recoup the costs of hiring
and training older workers. The shorter potential length of time an older
worker may remain with an employer, compared with a younger

38 Advisory Council Working Group Report on Phased Retirement, November 14,
2000. 39 However, a recent survey of human resource managers found that
older workers were compared favorably with younger workers in most areas
except technological expertise. See Taylor, Humphrey J. ?Older Workers: A
Valuable Resource for the Workplace,? in

Working Through Demographic Change: How Older Americans Can Sustain the
Nation?s Prosperity, William Zinke and Susan Tattershall eds. Human Resource
Services, Inc.: Boulder, CO. 2000, pp. 5- 14.

40 Advisory Council Working Group Report on Phased Retirement, November 14,
2000. Many Other Factors Inhibit

the Employment of Older Workers

Page 32 GAO- 02- 85 Older Workers

worker, implies that these up- front fixed costs are greater for older
workers because of the shorter time period for employers to recoup their
investment. 41 Moreover, all other things being equal, older workers can
raise an employer?s cost of providing health coverage. 42 To address these
issues, the ERISA Advisory Council recommended that legislation be developed
that would extend Medicare to workers between the ages of 55 and 64. 43

 Older workers have more health problems that inhibit work.

According to CPS data on self- reported health status, 17 percent of persons
age 55- 64 have a work- limiting health problem compared with 9 percent of
persons age 40- 54 and 5 percent of persons age 30- 39. 44

Older workers play a key role in the labor market and their importance will
only grow in the years to come. By 2008, 1 out of every 6 workers in the
American labor force will be over age 55, and this ratio is estimated to
reach over 1 out of 5 by 2025. Older workers will comprise a progressively
larger number of our nation?s managers, supervisors, and executives.
Employers will have to rely more heavily on this segment of the labor force,
as their experience and ?institutional knowledge? become an increasingly
valuable resource. Thus, older workers will become a critical labor force
component in maintaining future productivity and economic growth,
particularly if, as projected, labor force growth continues to slow.

Yet, employers have taken little action so far to prepare for this
demographic transition. We identified few employers with well

41 R. M. Hutchens, ?Do Job Opportunities Decline with Age?? Industrial and
Labor Relations Review, Vol. 42, No. 1 (1988), p. 89- 99. 42 However, it is
uncertain whether employers actually pay this higher cost or whether older
workers pay it. In response to a survey conducted by the Society of Human
Resource Management and the American Association of Retired Persons, 33
percent of the respondents agreed that older workers increase the health
care costs of their organization, 36 percent disagreed, and 31 percent were
undecided. Furthermore, section 4( f)( 2)( B)( i) of the ADEA, 29 U. S. C.
623( f)( 2)( B)( i) permits an employer to offer lower levels of benefits to
older workers than to younger workers when the cost of benefits increases
with age. Thus, in some instances, older workers may not be significantly
more expensive than younger workers with the same rate of pay.

43 Advisory Council Working Group Report on Phased Retirement, November 14,
2000. 44 For more information on the implications of declining health at
older ages, the ability to continue working and the effects of extending
employment on the solvency of the Social Security trust funds, see Social
Security Reform: Implications of Raising the Retirement Age, (GAO/ HEHS- 99-
112). Conclusions

Page 33 GAO- 02- 85 Older Workers

established, formalized programs to encourage older employees to work
longer. Some private employers have indicated an awareness of the need to
retain older workers and are experimenting with different options to extend
the work lives of their older employees. However, these programs remain
small and are often administered on an ad hoc basis. Flexible employment
programs also remain to be addressed by employers and workers in the
collective bargaining context. Public employer efforts to retain or rehire
older workers have been broader and somewhat more common, largely in
response to localized labor shortages in skilled occupations like teaching.

Part of this inaction may be because these demographic changes, while
inevitable, remain largely on the horizon. Most employers are not yet facing
labor shortages or other economic pressures requiring them to consider
phased retirement or related programs. For this reason, time is available to
develop sound policies, programs, and practices to respond to this
demographic challenge. Some public discussion on this matter is already
taking place. For example, Labor?s ERISA Advisory Council has received
testimony from employers and other interested parties as to how federal
policy and laws should be changed to address phased retirement, and the
older worker issue generally. From this testimony, the Advisory Council has
made recommendations to the Secretary of Labor, particularly with regard to
current pension law and policy.

The ERISA Advisory Council has already urged that the Secretary of Labor
convene a task force that would focus on issues concerning the extension of
DROP plans to private employers. However, many of the recommendations
suggested by the Advisory Council are beyond the purview of the Labor
Department and would require action by other agencies or the Congress for
implementation, as well as raising cost implications. Additional expert
assessment and input from those agencies charged with administering the
affected laws and regulations would help ensure that these recommendations
are both carefully crafted and represent sound policy, particularly those
calling for far reaching legislative changes. Expertise and input from
outside agencies could also help to identify any unintended consequences of
the actions that could be taken. For example, amending the ADEA to
facilitate the expansion of phased retirement programs might result in some
older workers losing legal protection against age discrimination in ways not
previously recognized or understood. It also raises the risk that workers
might outlive their retirement savings by beginning benefits too early.

Page 34 GAO- 02- 85 Older Workers

Finally, greater input from other agencies could help to identify other
aspects of the issues already explored and additional recommendations not
addressed by the Advisory Council. This is particularly important given that
the diversity among firms and industries suggests a need for a range of
solutions. For example, what may work for public employers- creating
incentives to extend employment through alterations in the design of their
defined benefit pension plans- may not be helpful for private employers who
do not have such plans or could not afford such redesign.

The challenge of how to extend the work lives of older employees in a manner
that balances the competitive imperative of business with the life realities
of older workers presents many opportunities. By focusing on the development
of the policies, programs, and employment arrangements necessary to extend
the work life of the growing numbers of older employees, the nation can
ensure future supplies of skilled workers, bolster economic growth, and help
secure retirement income adequacy for many working Americans.

To address the potentially serious implications of the aging of the U. S.
labor force and avoid possibly acute occupational labor shortages in the
future, the relevant government agencies should work together to identify
sound policies to extend the worklife of older Americans, including those
legal changes that would foster creative solutions to extending workers?
careers. Specifically, we recommend that the Secretary of Labor convene an
interagency task force to develop legislative and regulatory proposals
addressing the issues raised by the aging of the labor force. This task
force would include representatives from Labor, and other agencies that have
either regulatory jurisdiction or a clear policy interest, bringing together
the expertise necessary to consider fully the implications of each proposal.
It would solicit input from employers, unions, and other interested parties
and carefully balance the concerns of older workers, employers, and the
general public. The task force would also serve as a clearinghouse of
information about employer or collectively bargained programs to extend the
work life of older workers.

We provided the EEOC, Labor, Treasury, and the Social Security
Administration the opportunity to comment on the draft report. EEOC provided
us with written comments, which appear in their entirety in appendix II.
EEOC agreed with our findings, strongly supporting the goal of encouraging
older workers to remain in the labor force and endorsing our recommendation
for the convention of an interagency task force. The Recommendations

Agency Comments and Our Evaluation

Page 35 GAO- 02- 85 Older Workers

agency also provided us with several technical comments, which we
incorporated as appropriate. Labor, Treasury and the Social Security
Administration provided us with technical comments, which we incorporated as
appropriate.

We are providing copies of this report to the Secretary of Labor, the
Secretary of the Treasury, the Commissioner of Social Security, and the
Commissioners of the Equal Employment Opportunity Commission. Copies will be
made available to others upon request. Please contact me at (202) 512- 7215,
Charlie Jeszeck at (202) 512- 7036, or Jeff Petersen at (415) 904- 2175, if
you have any questions about this report. Other major contributors to this
report are listed in appendix IV.

Sincerely yours, Barbara D. Bovbjerg Director, Education, Workforce

and Income Security Issues

Appendix I: Data on Employment of Older Workers

Page 36 GAO- 02- 85 Older Workers

Table 7: Earnings and Work Status of Workers Age 55- 64 and 65- 74, 1999
Median annual earnings for workers Percent working full time Occupation Age
55- 64 Age 65- 74 Age 55- 64 Age 65- 74

Executive, administrator, manager $ 46,000 $ 25,300 83 54 Professional $
45,760 $ 35,000 71 53 Administrative support $ 23,000 $ 12,300 72 41
Services $ 15,000 $ 8,000 62 30 Sales $ 25,000 $ 13,000 72 41 Production,
craft, repair $ 32,000 $ 18,000 83 54 Machine operator, assembly $ 22,880 $
13,800 85 52 Transportation $ 30,000 $ 9,672 69 30 Farm, forest, fishing $
14,500 $ 5,000 65 43 Laborers, handlers $ 20,800 $ 14,000 71 45 Technicians
$ 36,400 $ 18,000 81 43

All occupations $ 28,900 $ 14,329 74 44

Source: March 2000 CPS.

Table 8: Selected Percentages of Workers in an Occupation That Are Age 55 or
Older, 2000- 08 Occupational group

2000 (percent) 2008 (Projected

percent) Executive, administration, and managerial occupations

Executive/ admin/ managers 14.6 22.3 Property/ real estate managers 28.1
36.2

Professional specialty occupations

Scientists/ engineers 12.6 15.5 Computer professionals 5.4 10.9 Doctors/
other health diagnosis 19.3 26.3 Nurses/ other health treatment 12.0 18.0
Post- secondary teachers 23.3 27.0 Teachers (through secondary) 12.8 18.5
Lawyers and judges 16.9 26.0 Clergy/ religious workers 27.4 35.5 Other
professionals 14.2 18.4 Technicians 7.7 10.4

Sales occupations

Real estate sales 30.3 41.2 Other sales occupations 13.2 16.1 Administrative
support occupations Administrative support 13.3 15.8

Service occupations Personal Services

Household services 20.6 20.2

Appendix I: Data on Employment of Older Workers

Appendix I: Data on Employment of Older Workers

Page 37 GAO- 02- 85 Older Workers

Occupational group 2000

(percent) 2008 (Projected percent)

Security and crossing guards 23.5 26.6 Other protective services 6.9 8. 8
Food service occupations 8.1 8. 1 Health service occupations 13.7 15.6
Cleaning/ building services 18.8 20.6 Personal services 13.5 15.5

Precision production, craft, and repair occupations

Mechanics/ repair 11.7 13.3 Construction/ extraction 9.3 10.9 Production
14.4 15.8

Operators, fabricators, laborers

Machine Operators/ assemblers 11.4 12.6 Transportation 16.2 18.3 Laborers/
handlers 8.2 9. 2

Farming, forestry, and fishing occupations

Farmers 42.0 48.3 Other agriculture/ forestry/ fish 12.2 12.3

All occupations 13.2 16.6 Total employed - all ages 135,500,000 148,319,000
Total employed - 55+ 17,930,000 24,568,000

Source: GAO projections. See Appendix III.

Appendix II: Comments From the Equal Employment Opportunity Commission

Page 38 GAO- 02- 85 Older Workers

Appendix II: Comments From the Equal Employment Opportunity Commission

Appendix II: Comments From the Equal Employment Opportunity Commission

Page 39 GAO- 02- 85 Older Workers

Appendix III: Scope and Methodology Page 40 GAO- 02- 85 Older Workers

Most of the survey data used in this report are from the March Current
Population Surveys (CPS). The annual March CPS is a source of income
estimates for the United States and also includes employment and demographic
data. We used the CPS because of its large sample size, its inclusion of
detailed information on the economic and demographic characteristics of
labor force participants, the timeliness of its data, and its collection
frequency and consistency, which allows the opportunity to show trends over
time and construct projections. We used CPS Basic Monthly Survey data from
1983 through 2000, March supplement data from 1989 through 2000, and
February supplement data on displaced workers and job tenure and
occupational mobility from 1996, 1998, and 2000. The Health and Retirement
Survey (HRS) is composed of persons born between 1931 and 1941, and the
respondents are questioned every 2 years. The first wave of questions was
conducted in 1992. We used HRS data from Wave III that was conducted in
1996.

The sampling errors for the estimated percentages used in this report from
CPS data are less than plus or minus 1 percentage point at the 95 percent
confidence level. This sampling error does not apply to our projections of
occupational distributions or wages. Although widely used and a rich source
of detailed data, CPS and other surveys that are based on selfreported data
are subject to several sources of nonsampling error, including the
following: inability to get information about all sample cases; difficulties
of definition; differences in the interpretation of questions; respondents?
inability or unwillingness to provide correct information; and errors made
in collecting, recording, coding, and processing data. These nonsampling
errors can influence the accuracy of information presented in the report,
although the magnitude of their effect is not known.

Data were grouped into the age categories of 30- 39, 40- 54, 55- 64, and 65-
74 when the sample size was large enough to make calculations based upon
these age groups. When the sample size was too small to support these age
categories, we chose to group the data by over 55 and under 55.

We based our occupational projections to the year 2008 on methods developed
by the U. S. Department of Labor, Bureau of Labor Statistics. 1 In order to
do occupational projections by age group, we used 5- year age

1 See, U. S. Department of Labor, Bureau of Labor Statistics, Occupational
Projections and Training Data, Bulletin 2521, May 2000, pp. 74- 77. Appendix
III: Scope and Methodology

Survey Data Projection Methods

Appendix III: Scope and Methodology Page 41 GAO- 02- 85 Older Workers

cohorts from 1988- 93 and 1994- 98 CPS Basic Monthly Survey data,
calculating net replacement needs for 5- year intervals to 2003 and 2008. We
made adjustments for the irregular size of bottom and top age groups. To
compensate for missing historical data to project the younger age cohorts to
2008, we used BLS projections of the civilian labor force in 2008 for the
16- 24 and 25- 34 age groups and then we subtracted the percent unemployed
as of 2000 for these age groups. We then distributed the projected employed
by the percentage of those age groups in each occupational group in 2000.
The accuracy of our model was checked by running projections from earlier
data to the year 2000 and comparing the 2000 projections with actual 2000
data. We also adjusted our projected labor force numbers for 2008 by BLS?
labor force projections for 2008. To project earnings to 2008 for age groups
over 40, we calculated mean earnings by occupation, age group, and year from
1989 to 1999. We then inserted a variable to control for the business cycle,
projected the earnings by occupation and age group to 2008, and merged the
projected earnings with our age group specific 2008 occupational
projections. A potential shortcoming of our projections is that the cohort
effects (e. g., the baby boomers are different from older generations)
cannot be separated from age effects (e. g., the baby boomers labor force
behavior will change as they pass from middle to old age) using cross-
sectional data.

We identified companies with flexible employment programs for older workers
through interviews with experts and reviewing literature on the subject. We
then interviewed officials from 13 companies who were knowledgeable about
the programs. Public employers were identified and interviewed on the same
basis. Private and Public

Employer Information

Appendix IV: GAO Contacts and Staff Acknowledgments

Page 42 GAO- 02- 85 Older Workers

Barbara Bovbjerg, (202) 512- 5491 Charles Jeszeck, (202) 512- 7036 Jeff
Petersen, (415) 904- 2175

Other contributors to this report include Don Porteous, Roger Thomas, and
Howard Wial. Appendix IV: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(130006)

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