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Retirement Plans and Productivity

November 14, 2013

Pension plans are designed to get older workers to retire. The reason for this is that while pay tends to increase over a worker’s life, their productivity often flatlines or even declines in old age, especially in physically demanding jobs. Often the industries with the largest declines in productivity with age also have large pension schemes with generous early retirement provisions, such as steel companies and airlines.

Over the past decade or so, the relative productivity of older workers has increased. And, as one might expect, retirement plans have become more stingy in response. There is no need to try to drive older workers out anymore, now that knowledge work is relatively more important than phyiscal work. Interestingly though, pensions have not simply become smaller, but the structure has changed in such a way as to perform exactly the opposite function they once did!

401ks trick workers into working longer. People underestimate how much retirement costs, and when they get close to retirement, they realize they will need more retirement savings and thus prolong employment longer than their younger selves had anticipated.

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One Comment leave one →
  1. Jamar F. Nunez permalink
    November 18, 2013 8:11 pm

    The share of the youth labor force, workers ages 16 to 24, is expected to decrease from 13.6 percent in 2010 to 11.2 percent in 2020. The primary working-age group, those between 25 and 54 years old, is projected to decline from 66.9 percent of the labor force in 2010 to 63.7 percent in 2020. The share of workers ages 55 years and older, by contrast, are anticipated to leap from 19.5 percent to 25.2 percent of the labor force during the same period.

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