Is 'Unretirement' the Answer to the Labor Shortage?

When asked what could help ease the labor shortage right now, economist Greg Valliere replied recently: "We need more immigrants."

He may be right, because despite more people "unretiring" now, those numbers won't do much to alleviate the labor shortage, according to a new Center for Retirement Research of Boston College paper, "Will Unretirement Help Solve the Labor Shortage?"

Authors Geoffrey T. Sanzenbacher and Matthew S. Rutledge, both associate professors of the practice of economics at Boston College, researched to see where new (or old) labor could be found.

With roughly 15 million people ages 55 to 70 at any given time indicating they are retired and the U.S. economy facing a labor shortage, "the potential return of these retirees to the workforce is an important question," the authors state.

"On one hand, it seems likely that many retired workers could be enticed to return given that the job opening rate is at an all-time high. On the other hand, it is possible that retirement is not a choice easily undone," they explained.

A Look Back

Past research shows that rates of year-over-year returns of retirees going back to work is less than 5% of those over age 62.

The difference between now and this past study, the authors state, is that retirees may come back in larger numbers "given the current economic recovery."

For example, as of October 2021, there was a 6.9% job opening rate in the U.S, according to data from the Bureau of Labor Statistics. Previous research, however, shows that whether a good economy will drive retirees back is unclear, the authors write.

What seems to drive the return to the workforce isn't so much economic conditions but rather "part of a plan right from the start, after taking time off from a prior job to recover from burnout," the authors state.

That said, the authors wanted to see if there was a relationship between tight labor force conditions and a return to work by retirees. Using the March Annual Social and Economic Supplement to the CPS (March 2021), the authors explored how "the unretirement rate" has varied over the past four decades.

Upshot

The results of their study was that "the rate of unretirement has been relatively low over the last four decades, averaging just over 6%," they state.

Further, unretirement does not appear to be "very sensitive" to labor market conditions.

An example they gave was that in the three years before the Great Recession, when the job offer rate was relatively high for the era, unretirement averaged 7.5%. But in the three years after the Great Recession, that dropped to 6.4%.

Yet using regression analysis, they found a "slightly different picture." That is, "the effect of an increase in the job opening rate on unretirement is statistically significant, though relatively small." In fact, a 1-percentage-point increase, year-over-year, in a state's job opening rates is associated with a 0.5-percentage-point increase in unretirement, they state.

And those retirees more often reentering employment were younger (retired) workers, more educated workers and men.

To put this in perspective, the authors note that using the regression calculation estimate, an expected 1.9% more workers were to unretire typically during an economic recovery. Based on 15 million retirees (ages 55 to 70), that would mean 300,000 additional workers.

But here's the problem: This is less than one-tenth of the 4 million worker shortage, the authors state, "certainly, a non-trivial fraction but not a solution to the shortage either."

Yet there's another factor separating past data versus what's happening today, the authors state. Today, we are recovering from "a major pandemic that has included a large-scale change in working conditions, particularly the ability to work remotely."

This could be a game-changer in bringing needed labor out of retirement. It still isn't enough, but it could break past patterns.

"In these strange times, when a labor market recovery could also be accompanied by more opportunities to work remotely, such a break does not seem impossible," the authors conclude.