In a new paper, my colleague Aparna Mathur and her co-author Peter Hansen point out the need for policies to help older unemployed workers return to work. I do not want to deny the problems they point out, and the policies they propose are worthwhile.
But there are also many success stories among older workers in recent years. In fact, older workers were alone in increasing their labor force participation from 2007 to 2012, while it fell in other age groups. Moreover, older workers didn’t all become low-paid Wal-Mart greeters: median weekly earnings increased more among older workers than among the young, despite the influx of older workers into the labor market. (See my Dec. 2012 National Review article for more details. The Brookings Institution’s Gary Burtless provides some more recent data.)
What this tells me is that motivation matters: older individuals need to rebuild their 401(k)s before retiring, so many of them really, really want to get a job. And many of that group succeed.
One idea I have proposed – and which Senator Marco Rubio (R-FL) recently turned into legislation – is to harness that motivation by reducing or eliminating the Social Security payroll tax on older workers. Research shows that near-retirees are far more sensitive to tax rates than younger employees, since older workers have the option of retiring. Additionally, cutting the employer side of the 12.4% Social Security tax would make older workers more attractive to employers.
Using wage elasticities from research by Chicago Fed economist Eric French, I estimated that the increase in federal income taxes, Medicare taxes and state income taxes would approximately match the loss in Social Security taxes. In other words, a tax cut that comes pretty close to paying for itself.
More importantly, delaying retirement just a few years increases retirees’ Social Security benefits, builds up their personal savings, and reduces the number of retirement years those savings must cover.
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