Mandatory Retirement At 80? Demographic Trends Impacting Workers

Demographically, we are dealing with several trends. One is the impact of fewer immigrants available to employ. Another is fewer people entering the workforce, relative to those who conventionally retire. 

Because of these two trends, the future of work resides with those who will work over the age of 55. In fact, by 2024, one quarter of the work force as forecasted will be in this age group, double the percentage of today. 

A recent conference, sponsored by the Milken Institute and available on the website, has given a number of non-conventional forecasts for workers over the next 20 years. While the study pays tribute to Peter Drucker’s concept of the “knowledge worker”, it adds some interesting twists. 

According to Drucker’s concept of the future of work, individuals will attend schools of life-long learning, taking time out for five to ten years at a time to apply their knowledge in the work place. Most work would be done by what we call today “free lancers”, who would be placed by agencies or be recruited directly. 

An alternative would be a career employee who is periodically sent back to school, but is retained by the organization.

Workers over 65 have a surprising edge over younger workers in terms of health care: the government pays for it. This makes hiring older workers more cost effective than those for whom health care must be provided. Over the age of 66 (depending on our date of birth), company retirement benefits may be scaled back due to the ability of the worker to qualify for Social Security while still working. At younger ages, Social Security can be withheld if income exceeds a certain amount.

Not all of those over 65 will continue to work. Labor force participation peaks around age 53 and falls off due to a number of factors such as disability, attainment of personal wealth, a desire to live life in a different direction, etc. What will change is the willingness, if not encouragement, of companies to accommodate people to think in terms of working part time or on special projects in an effort to preserve institutional knowledge. 

With this shift to older workers will come a change in the expectation of earning progressively more money in each successive year with the same employer. Workers will be allowed to scale back, working part-time or taking on less-demanding tasks and earning less, while not being threatened with dismissal. For many firms, a culture of “up or out” predominates: either you progress to higher pay and responsibility, or you leave. After taking stock of how much institutional knowledge has been lost by such policies, companies will re-think the entire career track. It will be acceptable for employees to scale back, should they so desire. 

One expansion of Drucker’s idea of the knowledge worker is the efforts of large organizations to grant scholarships, sabbaticals, and the like to keep talent for an entire career. Older workers will be expected to work alongside younger workers, with each learning from the other.

This will require a sea change in how organizations manage employees. It will require employers to consider workers on all levels as less of a cost or expense and more of an asset. Not all companies are capable of it, nor are all jobs or all workers. But as the labor market tightens, such an approach will be necessary to address the inevitable loss of employees to firms who do offer such employee benefits.

Healthcare for those over 65 has greatly reduced heart disease and diabetes, or at least regulated them to the point they are not automatically considered grounds for retirement. Add to this the fact that many Americans cannot afford to retire, and you have a willing segment of the population who has both a work ethic and work experience.

Not all work will be for corporations or even for financial enrichment. There is expected to be an upsurge in volunteering by those who do not need the money, but want to choose how to spend the balance of their lives. Volunteering will become more of a status symbol, as charitable organizations work to mold their positions to the needs and demands of those who are offering their time. Volunteers may even supervise paid employees, providing management skills and organizational knowledge that younger employees lack.

As demographics evolve, so will the meaning of work. Those who cannot afford to retire will work on. Those who can will have several options not widely available today. As our relationship with work changes, so will our expectations of the same. Human nature may desire security with age, but the future workplace may provide less of that but more opportunity. Not the same thing, but if you can’t have the former, the latter is not all bad.  

The Economy

The economy is showing some signs of stalling out. Housing demand has suddenly contracted back to the levels of one year ago, and consumer spending in other areas is tepid.

While not yet signaling a recession, the economic indicators are beginning to flash amber. This is chiefly the result of little or no business investment, such as adding plant capacity, etc.  This in turn reflects the confused state of the political world, in that the business community has no idea of the cost of health care, the tax rate, etc.

Hopefully these issues will be resolved in short order. Also, implementation of the ten-year infrastructure spending on bridges, roads, airports, etc. would be a way to create demand for capital goods from the private sector.

Interest Rates

As if to weigh in on the Federal Reserve’s decision to increase interest rates, the price of longer dated bonds went up instead of down, as one would expect. 

This pricing action suggests that the bond market is assuming that yields will fall and not rise, which is associated with economic contraction.

As the Federal Reserve enacts its plan to reduce its bond portfolio, the volume of money in circulation will shrink accordingly. Estimates of the amount of shrinkage range to about $500 billion per year. This reduction of funds will do more to increase interest rates than the quarter point increments in the Fed Funds rate. Already, CDs are being advertised online with rates of as much as 1.4 percent with a one year maturity. As recently as last fall, few CDs were being offered with interest of over one percent for the same time horizon.


Technology continues to repress inflation statistics. Price wars in cell phone services will result in lower inflation. 

However, there is a sense that in goods at least, inflation may be accelerating. Naming steel as a strategic good is resulting in tariffs on all imported steel. While this will, in theory, protect the steel industry by reducing foreign competition, it will result in higher prices, both for steel and for exports that will be targeted for retaliatory tariffs by other countries. As the administration continues to advocate for domestic producers over imports, expect more trade tit for tats. The case study of the logical result of this is Argentina, where the economy is the second poorest to Venezuela in Latin America.

The Stock Market

Year to date, the Standard & Poor’s market index is up about 8 percent, with five stocks in the technology area (Amazon, Apple, Alphabet, Microsoft, and Facebook) accounting for half the gain. This is due to their market movement and large size. Collectively, these firms make up about 40 percent of the Standard & Poor’s 500, based on capitalization.

The last time the market was being carried by so few stocks was 1998-99, during the dot com era. With a trailing price-to-earnings (P/E) ratio of almost 22, these firms must deliver for the market to continue to advance. These companies increasingly are getting caught in the trade war crossfire, as other countries look for what the United States provides that can be taxed in a way that makes local providers more appealing.  


                            Warren M. Barnett, CFA

                            June 21, 2017

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