Declines in Labor Market Participation Driven by Retirement Among Workers Ages 65 and Older

New AARP research has found that about two in five workers ages 50+ who had recently retired, left a job, or considered leaving a job wouldn't have done so had it not been for the pandemic. And one in five retired earlier than planned because of the pandemic. Meanwhile, analysis of government data from the Federal Reserve Bank of St. Louis' Institute for Economic Equity (IEE) finds that the increase in retirements during the COVID-19 pandemic has been driven primarily by those age 65 and older, with a particularly steep rise in retirements among those ages 65 to 74. The data indicate that as of October 2021, there were 3.3 million more retirees than in January 2020, a 7 percent increase. These findings add more detail to our understanding of labor market trends during the pandemic and may help economists predict the likelihood of retired workers returning to the labor force in the months ahead.

Retirement Wave: More Than the Boomer Demographic Shift

While the age profile of the large baby-boom generation had already foretold a rise in retirements over the next few years, the rate of retirements during the pandemic has exceeded the rate predicted. Last month, an analysis of government data by the Federal Reserve Bank of St. Louis estimated that as of August 2021, there were slightly more than 2.4 million "excess" retirements due to the pandemic than would have otherwise occurred. These retirements account for more than half of the 4.2 million people who left the labor force from the beginning of the pandemic to the second quarter of 2021. These findings suggest that a large share of the workforce that left the labor market during the pandemic came from workers retiring.  

Recent Retirees: Age, Education, Income, Sex, Race/Ethnicity

Understanding the characteristics of the people who have retired during the pandemic may help forecast how many retirees are likely to return to the job market if conditions change. For example, with the IEE research showing that during the pandemic most retirements were among workers ages 65 and older while retirements mainly remained flat among those ages 55 to 64, the resulting older age profile of pandemic retirees makes it somewhat less likely that many will be heading back into the workforce.

Though the labor force participation rate of workers ages 65 and older with the highest levels of education has fallen during the pandemic, workers with higher levels of education, as well as workers with higher levels of income, have remained the most likely to continue working at ages 65 and older. Such workers are more likely to work in occupations with good working conditions, including access to remote work and a safer work environment. However, this segment of the older worker population is also the least vulnerable; they are more likely to have retirement savings and, once retired, may have less financial need to return to paid work.

Working conditions within specific industries, in fact, may have played a role in some decisions to retire. Early in the pandemic, high job loss rates in the retail, trade, and leisure and hospitality industries displaced high numbers of older workers, especially women. Subsequently, a large share of the older women who worked in these industries retired as the pandemic wore on. Also playing an important role in drawing many into retirement sooner than planned was that many workers had jobs where they faced higher health risks due to exposure to the public. Improving conditions in these industries may encourage some of these retirees to reenter the workforce, especially those with less savings and the greatest need for earned income.

Overall, the IEE analysis showed that Black, Hispanic, and Native American workers were less likely to be retired than their White counterparts. Asian workers were slightly more likely to be retired. Women were more likely to be retired than men, especially among workers ages 65 to 74.

Will the "Great Retirement" Lead to a Great "Un-Retirement?"

As employers continue to report difficulty filling many of their open jobs, the question of how many retirees will head back to work will remain top of mind. The longer the pandemic drags on, the less likely individuals with adequate savings who have retired will rejoin the workforce. But if conditions, including wages, improve, at least some retirees, especially those with little in savings, may decide to "un-retire" and seek employment once again. Meanwhile, many of those with the most financial need to keep working never stopped.

For more jobs data: Find the latest employment data in the AARP Public Policy Institute's (PPI) Employment Data Digest, PPI's monthly review of job trends for those ages 55 and over. Visit the AARP website's work and jobs section for articles on work and unemployment and job search resources.