Ever since the pandemic hit, business owners have faced hiring challenges, surfacing the age-old refrain of “no one wants to work anymore.”
But who, exactly, has left the labor force? A major driver of the labor shortage may be older workers getting wealthy enough that they no longer needed jobs.
Key Takeaways
- The labor market is still feeling the effects of a wave of pandemic-era retirements: 2.4 million more people are retired than the pre-pandemic trend would predict.
- The 2020-2021 boom in stocks and home prices supercharged the net worth of many older workers, enabling many of them to stop working.
- Some people un-retired after stocks fell in 2022, but not enough to reverse the trend.
The Pandemic Created 2.4 Million 'Excess Retirees'
That’s according to a working paper by an economist at the Federal Reserve Bank of St. Louis, who found retirements surged during the pandemic, and haven’t gone back to normal. As of April, there were 2.4 million more retired workers than expected before the pandemic changed many people’s financial situations, according to an analysis by Miguel Faria e Castro and research associate Samuel Jordan-Wood.
The researchers found the surge in the value of assets like stocks, and homes between 2020 and 2022 likely played a major role in enabling people to retire sooner than they otherwise would have.
That’s what happened with Gerald and Alison Huck, The Florida couple both worked in the defense industry before retiring at age 57 in 2021. The topic of retirement came up at Gerald Huck’s annual meeting with his financial advisor: His portfolio had shot up thanks to the roaring stock market.
“I made some comment, like, ‘I wish I could retire right now,’” Huck recalls. “And he said, ‘Well you probably can.’ I said, ‘Well, if I probably can, then why the hell am I still working?’”
The Hucks left their day jobs for retirement and they were far from alone.
Older Workers Could Afford To Leave Work—And Many Haven't Returned
The St. Louis Fed research sheds light on a phenomenon unique to the post-pandemic economy: There are fewer workers than jobs, and many of the older employees left the labor force when the pandemic hit. The shortfall in workers has contributed to an unemployment rate that continues to hover near record lows despite growing fears of a recession.
The overall labor force participation rate—the percentage of people who have a job or are looking for one—dropped from 63.3% to 60.1% when COVID-19 hit and has since rebounded to 62.6% as of May, still short of its former level.
Younger workers have come back, with those ages 25-54 working more now than they did before the pandemic. There was no bounce-back for older workers. Only 38.4% of those older than 55 are in the workforce, down from 40.3% before the pandemic.
Part of that phenomenon is to be expected as the overall population ages. The median age of Americans crept up 0.2 years to 38.9 between 2021 and 2022 due to the birth rate being lower than in years past, the Census Bureau said last week. Still, the number of retirements was millions more than would have been caused by aging alone.
Castro’s research shows that what economists call “wealth effects” are responsible. Simply put, when people are wealthier, they tend to work less because, with less pressure to earn, they value leisure time more than the money that working brings in.
“This effect is particularly salient to older people ‘on the margin,’ who are about to exit the workforce altogether,” Castro said in an email. “Increases in wealth for this demographic tend to be reflected in large changes in the willingness to work. Since people close to retirement tend to own a lot of assets (as they are saving for retirement), and the values of many assets grew considerably during the pandemic period, this made them more likely to retire.”
Indeed, the pandemic made a lot of older people much wealthier very quickly. The stock market soared, with the popular S&P 500 stock index jumping more than 35% between 2019 and 2021.
Home prices surged too, rising 30% over the same period according to the S&P CoreLogic Case-Shiller Home Price Index.
During the boom period of 2020 and 2021, older people saw huge gains in their net worth. Those aged 55 to 64 gained $121,000 on average, while those 65 to 74 did even better, seeing their net worths increase by an average $135,000, Castro calculated. Younger people, who have fewer assets, didn’t do nearly as well, with those under 35 typically gaining $15,000.
The Boom Hasn't Lasted
Of course, the COVID-19 pandemic inspired a lot of early retirements for reasons beyond money. Many older workers feared for their health amid the pandemic and others helped their families with child care. However, Castro argues, the changes in net worth enabled many of these early retirements even if it didn’t cause them.
A case in point: Kent Smith, a traveling consultant based in Los Angeles, faced a stark reality when the pandemic hit and projects dried up. In September 2020, at the age of 61, he had to choose between continuing a career where prospects were looking bleak, or calling it quits. The soaring stock market made the decision easy.
“Even though there was COVID, things were going great guns,” Smith said. “Numbers that I had kept in mind for when I was capable of retiring, my accounts were far exceeding it. So I said, You know what? I can retire. I can make this work.”
In 2022, both the stock market and housing market gave up some of those gains, and despite bouncing back somewhat, have yet to reach the peaks they hit that year. At the same time, jobs have gotten more lucrative amid a hot labor market and the threat posed by COVID-19 has faded. That’s caused the retirement boom to lose some steam, with the number of excess retirees dropping by 550,000 from its peak in December 2022 to 2.4 million as of May, according to Castro’s analysis.
When stocks fell in 2022, with the S&P 500 entering bear territory, Gerald Huck was forced to rethink his retirement plans after looking at the balance of his retirement account.
“One day you open it up and it hits you in the face that you’ve lost $300,000,” Gerald Huck said.
He and Alison have both returned to work for the time being, him at NASA and her as a visual merchandiser for a furniture store.
Smith, on the other hand, has stayed retired.
“I'm still comfortable with the numbers,” he said.
