The Evolution of Retirement: An American Economic History, 1880-1990
This book focuses on the evolution of retirement from 1880 to the present. In the United States, labor force participation rates of men older than 64 were 80 percent in 1880, but were only 47 percent in 1950. By 1990 they were less than 20 percent. Thus 41 percent of the long-run decline occurred before the post-war growth of Social Security and private pension plans. I investigate the factors that fostered the rise in retirement rates in this period.
One possible explanation for the increase in retirement rates is rising household income. I study this by estimating the income effect of a large government transfer. This government transfer constitutes the first major pension program in the United States -- that which covered the Union Army veterans of the American Civil War. Using a unique longitudinal data set that follows Union Army recruits from their youth to death, I find that pensions had a substantial impact on labor force participation rates. My findings suggest that the high labor force participation rate of older men prevailing at the turn of the century arose because retirement incomes were too low to fully support older men and that as retirement incomes have risen so have retirement rates. I attribute much of the long-term increase in retirement rates to secularly rising incomes.
In my book I rule out several alternative explanations for increased retirement rates, including the shiftfrom agriculture to manufacturing, reduced opportunities for part-time work and non-farm self-employment, and worsening average health of the population. Not only has the burden of chronic disease fallen tremendously, health has become less important to the retirement decision. An increasedproportion of the older workers who remain in the labor force are part-time workers. Low retirement rates among the self-employed relative to wage and salary workers and among farmers relative to non-farmers are a recent phenomenon.
Increased incomes are not, however, the sole explanation for the rise of retirement. In fact, I show that the income elasticity of retirement has fallen over time. Retirement has become much more attractive because the retired are no longer dependent upon their family and friends for support. They can now afford to maintain their autonomy even when no longer working. By examining data on the living arrangements of elderly men, I show that at the beginning of the century men would have preferred to remain independent of their families, but simply could not afford to do so.
Retirement has also become more attractive because men are less circumscribed in their choice of leisure time activities. I show that rising income and technological change have made the complements of leisure, recreational goods, more affordable.
The lower price of recreational goods and increases in their variety have made retirement much more attractive than it was in the past. This in turn may have induced more retirement.