The Future of ‘Sworking’

by | March 18, 2024

‘Sworking’? What’s that?

In some quarters ‘sworking’ stands for the synergy between success and work. I’d like to offer an alternative definition, namely ‘seniors working’. In this sense, ‘sworking’ is about the growing desire of older workers to postpone retirement to continue their participation in the workforce.

‘Sworking’ is a real thing. As we show below, labor force participation rates among those 60 and older are rising in many countries. Various reasons have been put forward to explain the increased desire to ‘swork’, but important recent research suggests that financial incentives are enticing more seniors to remain employed.

Extending lifetime labor force participation is of interest for many reasons. For individuals, it can foster purpose in life and improve financial conditions in retirement. For policy makers concerned about financial pressures on public pension schemes, extending working lifetimes puts less onus on unpopular cuts in benefits or increases in taxes that are otherwise inevitable. And in many cases those pressures are building – absent reforms, the US Social Security Board of Trustees estimates the system’s trust funds will be depleted by 2041.

Nor is the US alone. Pressures on public pension systems are growing worldwide. According to the IMF’s 2023 Fiscal Monitor, the net present value of unfunded public pension schemes amounts to 17% of G-7 GDP, ranging from a low of 11% in the UK to a high of 34% in Italy.

That translates into $7-9 trillion dollars of unfunded public pension commitments across the world’s richest countries. While not an insurmountable figure, the implied tax burden or benefits reduction of addressing those shortfalls nevertheless looms as a large political obstacle.

In some quarters, proposals are already circulating to address pension shortfalls by increasing retirement ages. For example, last year the Republican Study Committee (the RSC is comprised of select Republican Congressional representatives) put forward a suggestion to raise the Social Security retirement age for 67 to 70.

Yet mandatory increases in retirement ages are problematic. Politically, they are challenging, given the unwillingness of workers nearing retirement to lose benefits they’ve long been told to expect, and which already accrue to today’s retirees. Older workers and retirees also have some of the highest voter turnout rates, stacking the political deck against raising retirement ages or reducing benefits.

Increasing retirement ages would also further skew income and wealth distribution. Life expectancy, for understandable reasons, is positively correlated with income. In the US, for example, life expectancy is over a decade longer for women in the top 1% of all earners compared to those in poorest cohort. For men, the outcome is even more extreme, with the richest American men expected to live a full fifteen years longer than the poorest. Raising mandatory retirement ages, in other words, is merely a shift in benefits from the poorest in society to the richest, which strikes many as unfair, even capricious.

The same applies to race. White and Asian Americans have longer life expectancy that Native Americans or Blacks. As of 2021, Black American life expectancy from birth was only 70.8 years, less than a year above the proposed retirement age of the RSC. Accordingly, raising the retirement age for all workers would disproportionately disadvantage minority communities, effectively creating a transfer of income and wealth to richer and ‘whiter’ populations.

But perhaps what cannot be achieved in law (raising statutory retirement ages) could be achieved via incentive. Which brings us back to ‘sworking’ and the reasons why economists are taking note.

According to a recent National Bureau for Economic Research (NBER) working paper, labor force participation rates have risen dramatically in recent decades for men and women across an array of high-income economies.

Statistics gleaned from the Organization for Economic Cooperation and Development (OECD) confirm those trends. According to the OECD, since 2000 labor force participation rates for those nearing traditional retirement ages (i.e., for workers aged 55-64) have risen by 15 or more percentage points in Canada, the EU and Japan, and by 10-15 percentage points in Switzerland, the UK, and the US. Labor force participation has also climbed in virtually all OECD countries for workers over the age of 65, with the largest increases in Canada, the UK, and the US. Moreover, in some countries, including Chile, Iceland, Israel, Japan, New Zealand, South Korea, and Sweden more than a fifth of all those over the age of 65 now remain in the labor force.

While it might be easy to conclude that rising participation rates among older workers are driven by improvements in health or in education, those factors alone cannot explain the scope and breadth of the observed increase in participation rates. Nor can national unemployment rates. Labor force participation rates among older workers have risen in countries with either persistently low or high unemployment rates. It is also not the case that rising participation rates among older workers displace employment opportunities for other age cohorts. There is sufficient work for all and ‘lump of labor’ theories, once again, have been found wanting.

Instead, the findings of the NBER paper suggest something else is driving the willingness to work, namely the financial benefits of postponing retirement. In many countries—though notably not the US—reforms have been introduced in recent decades that offer incentives for individuals to postpone retirement and continue to work. In the nomenclature of the paper, these incentives amount to a negative ‘implicit tax’ on work, essentially offering a subsidy to those who choose to extend their time in work in the form of a higher net pension benefit when they retire. Empirically, the paper finds, those incentives have been the key driving force encouraging older workers to remain in the labor market.

Of course, other factors are also important. As noted, the US has not enacted any significant reforms to Social Security since 1983, yet participation rates among older US workers, including those over 65, have nevertheless risen significantly. Low household savings rates over the past five decades, the adverse impact of the global financial crisis, and, perhaps, the dislocations caused by the pandemic have made it necessary for many older Americans to keep working. The advent of the ‘gig economy’ and ‘work from home’ have also created new opportunities for older workers in many countries to remain engaged.

But the study’s key finding nevertheless holds—labor force participation rates among older workers appear responsive to financial incentives.

That result ought to resonate with politicians who may otherwise fear the voters’ wrath if they cut retirement benefits, increase mandatory retirement ages, or propose higher taxes as solutions to the challenge of underfunded public pensions. Perhaps, instead, a cleverer way forward is to offer workers financial rewards to work longer and postpone retirement.

It’s an idea whose time has come. Indeed, one day ‘sworking’ might not stand for ‘senior working,’ but rather ‘smart working’.

Filed Under: Economics . Featured

About the Author

Larry Hatheway has over 25 years’ experience as an economist and multi-asset investment professional. He is co-founder, with Alexander Friedman, of Jackson Hole Economics, a non-profit offering commentary and analysis on the global economy, matters of public policy, and capital markets. Larry is also the founder of HarborAdvisors, LLC, an investment advisory firm catering to family offices and institutional clients worldwide.

Previously, Larry worked at GAM Investments from 2015-2019 as Group Chief Economist and Global Head of Investment Solutions, where he was responsible for a team of 50 investment professionals managing over $10bn in assets. While at GAM, Larry authored numerous articles on the world economy, policy-making, and multi-asset investment strategy.

From 1992 until 2015 Larry worked at UBS Investment Bank as Chief Economist (2005-2015), Head of Global Asset Allocation (2001-2012), Global Head of Fixed Income and Currency Strategy (1998-2001), Chief Economist, Asia (1995-1998) and Senior International Economist (1992-1995). Larry is widely recognized for his appearances on Bloomberg TV, CNBC, the BBC, CNN, and other media outlets. He frequently publishes articles and opinion pieces for Bloomberg, Barron’s, and Project Syndicate, among others.

Larry holds a PhD in Economics from the University of Texas, an MA in International Studies from the Johns Hopkins University, and a BA in History and German from Whitman College. Larry is married with four grown children and resides with his wife in Redding, CT, alongside their dog, chickens, bees, and a few ‘loaner’ sheep and goats.

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