Retirements Leave Hard-to-Fill Workforce Holes
Older adults who have retired may be one of the most important – and most overlooked – reasons for continuing high inflation. Despite robust hiring, the US economy remains 3.5 million workers short of pre-pandemic employment levels. Two million of those missing workers are retirees who aren’t returning to the office or plant floor.
Retiring workers leave more than just a hole to fill. They depart with knowledge, experience and history that is hard, if not impossible, to replace. Their collective departures have put a dent in the economy and unintentionally fanned inflationary flames. Employers have to raise salaries and benefits to attract workers from a smaller pool of qualified and experienced workers.
The situation poses a double whammy for the Federal Reserve, which is mandated to corral inflation and boost employment. The Fed may find itself in the policy-awkward position of trying to discourage employment and salary hikes to quell inflation.
Retiring workers leave more than just a hole to fill.
The workforce between the ages of 18 and 64 has largely rebounded to pre-pandemic levels, according to the Federal Reserve. “Despite very high wages and an incredibly tight labor market, we don’t see participation moving up, which is contrary to what we thought,” explains Fed Chair Jerome Powell. “Part of it is just accelerated retirements.”
Baby Boomers disappeared after the 2008 recession that was fueled by a bursting housing bubble. Fed officials worried then about whether older workers would return. They did and continued to work past during normal retirement age. Now, as 2023 rolls around, the Fed isn’t so sure that history will repeat itself.
For one thing, Baby Boomers are older. They also are generally better off financially, following a major run-up of the stock market and housing prices over the past two years. The pandemic underscored that life can be cut short. Many older adults sold their homes for inflated prices, banked government stimulus payments and booked deeply discounted ocean cruises. Inflation adjustments for Social Security payments and rising interest rates on savings added another nudge to sail, not pack a lunch.
Immigration snags have further complicated the labor picture. Entry-level jobs continue to go unfilled. Sections of the country have severe worker shortages. Immigration by professionals has slowed as well.
The workforce hole left by retirees and missing immigration complicates the soft-landing strategy Fed inflation fighters have sought. It appears Fed officials believe there will be a chronic labor shortage into the foreseeable future. “For the near term, moderation of labor demand will be required to restore balance to the labor market,” Powell says.
Six in 10 people between the ages of 55 and 64 have jobs or are looking for jobs. That percentage drops to three in 10 for people between 65 and 68. Now, only two in 10 people between 70 and 74 are still in the labor force.
Another workforce shortage that bears on inflation is occurring in China, which has drastically loosened its No-COVID policy and is experiencing epidemic levels of infections. The lockdowns of entire cities, including Shanghai, disrupted supply chains. Disruptions are continuing because rising illness among workers has crippled production lines as well as supply lines.
Inflation and retiring older adults isn’t the whole story. For retired adults on fixed incomes, inflation is a nightmare. Money reported a study indicating more than a third of adults between 60 and 75 believe they have less tucked away than they will need and thought they would have for a comfortable retirement. Rising interest rates on savings accounts isn’t enough to calm retirement anxiety. Neither are inflation-adjusted Social Security payments.
The choice of remaining or returning to the workplace for older adults is complicated if they have family members who are ill and need care. If financial distress forces older adults back into the job market, many of them may return only half-heartedly.
Arc of Inflation
The US monthly inflation rate rose from virtually zero in May 2020 to a high of 9.1 percent in July 2022. Inflation has tapered off since then to 7.1 percent in December 2022. The Federal Reserve target inflation rate is 2 percent.
Lower gas prices and falling housing and used car prices have contributed to lower monthly inflation rates since summer. Continuing high inflation reflects prices for heating fuel, food and products impacted by supply chain disruptions and the Russian invasion of Ukraine.