Early retirement is a wildcard for the job market recovery

As experts attempt to explain why businesses are struggling to hire, some have made the case that the pandemic encouraged older working Americans to retire earlier than expected.

Why it matters: If it’s true that retirements are unusually high, then the labor market may have less slack than many assume.

  • However, it’s not too unusual for people to retire only to eventually return to work again.

By the numbers: The percentage of the U.S. population in retirement has been increasing modestly for years, but jumped from 18.5% in February 2020 to 19.6% in May 2021. This is an increase of about 2.9 million people during the period.

  • In a study first conducted by the Dallas Fed in May, and updated in July for Axios, just 1.2 million would have retired assuming a continuation of 2019 retirement rates.
  • This means an extra 1.7 million retired earlier than expected.
  • This trend is confirmed by the labor force participation rate, which remains depressed at 38.4% for those age 55 and over. This is down from 40%+ levels before the pandemic.

What they’re saying: “Early-retirement decisions during the pandemic, boosted by well-cushioned 401(k) accounts, have partly dampened the supply of older workers,” wrote Oxford Economics lead U.S. economist Lydia Boussour.

  • “The virus’ significant health risks for the most senior workers and their lower ability to telework led many to opt out of the workforce.”

Yes, but: “I am convinced that at least some of the retirement population is more transitory in nature, especially given that some are relatively young,” Invesco chief global market strategist Kristina Hooper tells Axios.

  • Retirees could come back as wages increase and COVID risk subsides — and as retirement savings dries up, Hooper says.

The bottom line: “People’s decisions to work is affected by a wide array of factors, and even if some constraints are removed it’ll take some time before the post-COVID normal resembles the pre-COVID normal,” Oxford Economics’ chief U.S. economist Greg Daco tells Axios.

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