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Economics: Too Old: Discarding Valuable Workers?

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  • Type: Video Tutorial
  • Length: 6:04
  • Media: Video/mp4
  • Use: Watch Online & Download
  • Access Period: Unrestricted
  • Download: MP4 (iPod compatible)
  • Size: 65 MB
  • Posted: 03/29/2010

This lesson is part of the following series:

Economics: Full Course (269 lessons, $198.00)
Economics: Fluctuations: Unemployment & Inflation (18 lessons, $22.77)
Economics: Measuring Unemployment (5 lessons, $7.92)

This video looks at the debate surrounding the idea of "Too Old to Work." Does this idea mean that we are discarding valuable workers? Taught by Professor Tomlinson, this lesson was selected from a broader, comprehensive course, Economics. This course and others are available from Thinkwell, Inc. The full course can be found at http://www.thinkwell.com/student/product/economics. The full course covers economic thinking, markets, consumer choice, household behavior, production, costs, perfect competition, market models, resource markets, market failures, market outcomes, macroeconomics, macroeconomic measurements, economic fluctuations, unemployment, inflation, the aggregate expenditures model, banking, spending, saving, investing, aggregate demand and aggregate supply model, monetary policy, fiscal policy, productivity and growth, and international examples.

Steven Tomlinson teaches economics at the Acton School of Business in Austin, Texas. He graduated with highest honors from the University of Oklahoma and earned a Ph.D. in economics at Stanford University. Prof. Tomlinson's academic awards include the prestigious Texas Excellence Teaching Award given by the University of Texas Alumni Association and being named "Outstanding Core Faculty in the MBA Program" several times. He has developed several instructional guides and computerized educational programs for economics.

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Thinkwell
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It's the year 2000 and the U.S. economy is booming. Real GDP is growing at annual rates of 5% and 6%, and consumers are flush with wealth and stock market gains. It's a great time to be selling stuff. The problem for businesses is they're having trouble finding workers. The unemployment rate is around 4%, and wages are starting to inch up, which is triggering fears of inflation. Maybe the Federal Reserve is going to tighten the money supply, waiving interest rates, and taking the punch bowl away from the party.
This raises a big question: How do we find the labor to keep the economy booming? Where are the workers going to come from that's going to keep the U.S. economy growing into the new millennium? Consider the last time the U.S. economy was booming anything like this - the 1950s and 1960s. During those years business drew on a previously untapped source of labor, as women were recruited into the labor force in record numbers by economic incentives.
So maybe that's the solution now; maybe in the year 2000 businesses will turn to previously untapped pools of labor. We're already seeing this happen as disabled Americans are recruited into the labor force in record numbers. Perhaps also immigration laws will be relaxed, allowing workers from abroad to come in and fill the gaps. Another source of labor that is untapped and perhaps ready to be recruited is older Americans - workers that are retired.
If you think about this, the demographics suggest that, as we move further and further into the 21st century, this group of workers is going to have to be supply a larger amount of labor. Think about the statistics. According to the Census Bureau, if you look at Americans aged 18 to 44, that segment of the population is going to increase by only about 4% between 1995 and the year 2020. During those same years Americans over 65 as a group is going to be growing by about 60%. So maybe that's what's going to happen; maybe older Americans and retired workers will be recruited back into the workforce to help ease labor shortages.
Well, this raises a question. If these workers are there, and if, as surveys show, the vast majority of them would like to work, why aren't they working? What would have to change in order to bring older workers back into the workforce? After all, they're healthy, they want to work, and they are experienced and talented. Well, consider some of the institutional barriers to those workers working.
The first concerns social security, which began back in the 1930s, which involved a retirement age of 65, and regular, paid benefits after that date. Workers who were working were losing benefits because of caps on earnings outside the social security system. Turns out that if you work and earn an extra dollar whenever you're earning social security, the amount of social security that you lose, as well as other tax consequences, mean that your effective tax rate on an extra dollar of income is around 67-68%. There's very little incentive for older workers to work when they're going to lose their social security payments.
A second concern is imposed by the private sector. Many older workers are earning much more than younger workers because of seniority wage systems. That is, workers' annual salaries rise consistently during their years of service to a company. That means the older workers are the ones that are most expensive to a company; and, therefore, they're the ones that the company is most eager to lay off - no matter that they're experienced, they're just very, very costly. So also what they find is, the longer you keep a worker around, the higher your long-term obligations to that worker are going to be, because of what's called a "defined benefit pension system." That is, workers who are earning high wages at the time of their retirement are going to have to get high retirement benefit packages, because they're usually tied to the last wage you're earning before you retire. So there's a strong incentive on the part of the private sector in systems that are run on seniority to retire their workers before they become too costly.
A third problem with having workers in the industry after they're 65 is that there's now a huge industry that's arisen to entertain and distract our older and retired workers. There are cruises, there are retirement communities, there's lots of stuff to do with your time, and there's a whole industry out there that's competing for the attention of senior Americans to sell them things. Now, never mind the fact that they say that they'd rather work; there's lots of things competing for their time and attention, and that makes it more difficult to attract them back to the workforce.
But things are changing. Wages are rising because of the labor shortages; there are changes in the way work is organized, with new respect for senior workers returning to the workforce; and social security is itself being overhauled. One big change is that the earnings caps have been repealed so that workers are now able to earn money and not worry about losing their social security benefits.
Another change is that workers at private firms are now able to negotiate age-specific compensation plans with their employers so they can get out of the seniority system and still continue to be productive contributors without costing their firms too much. So all of these changes are at work, and you can bet the changes are being hastened by these labor shortages that make companies more and more eager to attract and retain talented workers, whether they're old or young. So changes in the system would make it easier for older workers to not be retired but to work part-time or full-time back in industry - those changes are finding it's easier to easier to make them in an environment where labor is scarcer and scarcer.
Economic Fluctuations: Unemployment and Inflation
Measuring Unemployment
Hot Topic: Too Old to Work: Are We Discarding Valuable Workers? Page [2 of 2]

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