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 1998-

2025,” 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 Collarb58.5 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 Collarc29.1 26.2 25.1 23.2

Servicesd12.5 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 area

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 1994-

98 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

Totala100.0 100.0 100.0 100.0

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 5415 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

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

$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

Totala (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 participatea

Insurance Informally rehire retirees, typically on a parttime basis50-60

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 12-

month 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

 41R.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

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