Silver Lining

Please Take the Gold Watch. Please!

The abolition of mandatory retirement, and how it changed America in unexpected ways.

In the 1970s, W. Glenn Campbell had a brilliant idea for reviving the backwater California think tank he ran: He would hire pre-eminent scholars who were being let go from their universities because they had reached the age of mandatory retirement. So in the 1970s, Campbell lured philosopher Sidney Hook, physicist Edward Teller, and Nobel Laureate economist Milton Friedman to the Hoover Institution at Stanford University. “That was the key, the breakthrough,” says Melvyn Krauss, a Hoover senior fellow emeritus. Prior to their arrival, Krauss says, Hoover couldn’t attract well-known scholars in their prime. But with these big names at Hoover, other luminaries, and lots of donor money, followed.        

Mandatory retirement was an idea that took hold of the workplace in the early 20th century. By the 1970s, about half of American workers had a non-negotiable deadline for leaving, usually at age 65. For some, the departure may have been welcome; for others, it felt like being prematurely put out to pasture. (Friedman was active at Hoover for nearly 30 years, until his death at age 94.)

Then, as civil rights law expanded beyond race to encompass age, disability, and gender 25 years ago, mandatory retirement was struck down by Congress. In 1986, as part of a series of congressional actions to address age discrimination, it became illegal in almost all cases to force people out of jobs at any age. Joseph Quinn, a professor of economics at Boston College, wrote in a research paper that this move “sent an important message to society that the appropriate age to retire was not necessarily 65.”

The elimination of mandatory retirement became a turning point in the way Americans retire. It helped reverse a 100-year trend of people departing from the workforce in ever greater numbers and at an ever-earlier age. Because of increasing longevity, establishment of generous pension plans, and mandatory removal from the workplace, retirement had become something unprecedented: a third stage of life, potentially as long as childhood and one’s working years. Then, in the 1980s, the foundation of this third stage began to crumble.

Until the end of the 19th century, retirement planning was pretty simple for most Americans: You worked until you died. Sometimes, people became too old or incapacitated to continue on the farm or in the factory, and the lucky ones were cared for by family. In the 1880s, about 75 percent of men 65 and older were still in the labor force, writes Dora L. Costa, professor of economics at UCLA, in The Evolution of Retirement. But from that point on, until the 1980s, older men’s participation in the workforce began steadily falling. By 1900, it had dropped to 65 percent. (Historical figures only reflect men’s employment because of women’s far lower participation in the labor force.)

There were several causes for this decline. One was the appearance of pensions for Union Civil War veterans. In Working Longer, Alicia H. Munnell and Steven A. Sass of the Center for Retirement Research at Boston College write that many veterans left the workforce when they received a guaranteed stream of pension income. Pensions also became a more regular fixture as Americans shifted from self-employment, largely in agriculture, to working for companies.

In 1900, the Pennsylvania Railroad came up with an innovation: mandatory retirement. The company offered pensions to all its workers, but to collect they would have to retire at age 70. In a World Bank paper, economist Samuel H. Williamson writes that imposing a universal age of departure relieved companies of the unpleasantness of having to evaluate the fitness of their older workers individually and solved the growing problem of a glut of elderly, incapacitated employees.

The arrival of Social Security—the first retirement checks for workers who had reached age 65 were delivered in 1940—helped make leaving the workplace an even more reasonable proposition. In 1948, a Bureau of Labor Statistics study finds, just under 50 percent of men 65 and older were still in the workforce. By 1968, it was just under 30 percent, and by 1988 just under 20 percent. A chart from Quinn’s paper shows that had this linear trend continued, only about 10 percent of men ages 65 to 69 would still have been working by the end of the 20th century. But in the 1980s, that all stopped. “A century-old trend has come to a halt, and reversed,” writes Quinn. “The era of earlier and earlier retirement is over and is not coming back.”

Last year, the employment rate of men 65 and older had ticked back up to 22 percent. The employment of older women, although their absolute numbers are far smaller, has also shown a dramatic rise. From 1977 to 2007 the number of women age 65 and older in the workforce increased almost 150 percent. That’s not all. In the same period, the percentage of people of both sexes age 75 and up who are still working has increased more than 170 percent.

“There’s a whole new world out there,” says economist Quinn. “The incentives are different, and people are behaving differently.” For one thing, people are no longer given a gold watch and pushed out the door. For another, reforms in Social Security have created a financial incentive to work longer. For a third, the world of “defined benefit” pensions is being replaced by “defined contribution” pensions. In the former, workers are guaranteed a monthly check for as long as they live. In the latter, workers accumulate a pot of money, as in an IRA, and whatever’s in the pot better be enough to last.

Given these financial changes, the elimination of mandatory retirement has allowed people to work as long as they need to for as long as they feel able. The argument of Working Longer is that many Americans should shift their planned retirement from their early to late ‘60s, which will dramatically increase the financial security of their nonworking years. And Quinn writes that given the demographic bulge of older Americans, keeping them in the workforce will ease the burden on entitlement programs.

But social scientists love to find perverse incentives and unintended consequences, and in this case, some say protecting older workers’ ability to stay on the job has also made employers more reluctant to hire them.

“Basically, it’s a mess,” says Sass of the world of retirement today. He says employers liked mandatory retirement because it allowed for an orderly and predictable departure from the payroll. But that certainty is gone at a time that, more than ever, older workers need to find new jobs. In the 1980s, Sass says, about 75 percent of 50-year old workers would be at the same company 10 years later. Today, only half of 60 year-olds are working at the same place that employed them at age 50. In Working Longer, he and Munnell float what he calls the “somewhat scandalous” suggestion that the prohibition on mandatory retirement be repealed—allowing companies to impose it, he suggests, at the “politically feasible” age of 70. “Unless employers have an assurance they have a way to get rid of older employees, they won’t hire older workers,” he says.

Being stuck with people who just won’t accept it’s time to go is particularly acute in academia. A 2006 article in the Boston Globe found that more than 9 percent of tenured professors on Harvard’s faculty of arts and sciences were 70 or older, compared with none in 1992. (The abolition of mandatory retirement laws started applying to colleges and universities only in 1994.) The article notes that Columbia University offered generous financial incentives to get older faculty to leave, yet it had a higher percentage of tenured faculty over age 70 than Harvard. Former Harvard President Lawrence Summers said, “The aging of the faculty, caused in large part by the absence of mandatory retirement, is one of the profound problems facing the American research university.”

The United States was one of the first countries to abolish mandatory retirement, this British government report finds, and it was eventually followed by Australia and New Zealand. This year, the United Kingdom will eliminate mandatory retirement. Other countries with aging populations and decreasing numbers of workers are grappling with their mandatory retirement laws. In Japan, the mandatory retirement age has gradually increased; it started at 55 in 1994 and will become 65 in 2013. In France, the mandatory retirement age private employers can impose increased to 65 from 60 in 2003.

Joanna Lahey, an assistant professor at the Bush School of Government and Public Service at Texas A & M University, says that in Europe—and elsewhere—there’s a widespread, but mistaken, belief that if an old person keeps working a young person will be prevented from finding a job. “It’s not true,” she says. “More people working means greater productivity, which expands the economy. When women entered the labor force, they didn’t actually take men’s jobs away. There isn’t a fixed number of jobs.” (Lahey says even at universities it’s more complicated than an old professor blocking a young one. For instance, she says, increasingly when one professor retires that slot is filled by two, or more, nontenured adjuncts.)

In the United States, there remain a few exemptions to the anti-mandatory retirement laws. Public safety is the biggest one: Pilots are stripped of their epaulets at age 65, and air-traffic controllers stop telling them when to land at age 56 (although there are some exemptions for them). In addition, the law lets companies remove highly paid, high-responsibility employees at age 65. Lahey says this is a rarely used mechanism that allows firms to gracefully retire over-the-hill executives in danger of destroying the place.

Ironically, this was used against the Hoover Institution’s Campbell, who in time went from being a young director to an old director. Over the years, he had an increasingly combative relationship with the administrators of Stanford University. The university had had enough and told him he was retiring when he turned 65. Campbell threatened an age discrimination suit, but the Board of Trustees cited the exemption. The man who made his reputation by hiring forcibly retired scholars was himself forcibly retired.

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