Panel on Long-Term Dynamics of the Employment-to-Population Ratio at NBER Summer Institute

The 2023 NBER Summer Institute’s Economics of Social Security meeting featured a panel discussion examining the long-term dynamics of the employment-to-population ratio (EPOP). 

Karen Glenn, Deputy Chief Actuary of the Social Security Administration (SSA), began by providing an overview of the relevance of employment for social security projections. She outlined two key reasons: first, a higher EPOP leads to more workers contributing payroll taxes, increasing revenue; second, over time more contributing workers results in more benefit recipients and/or more total work years per worker, increasing benefit payments. 

Glenn discussed SSA projections for the EPOP following the COVID-19 pandemic. After declining during the pandemic, the ratio is projected to return to 2019 peaks for both men and women, meaning the gender gap will remain constant. Other measures indicate that while employment ratios and labor force participation have recovered to prepandemic levels for women, they have not done so for men. Additionally, the pandemic caused a divergence between the quit rate and the EPOP. Prior to the divergence, they had followed similar prepandemic trends. Employment of those over 65 briefly declined with the 2020 recession but is projected to continue rising over the long term.

Julie Topoleski of the Congressional Budget Office (CBO) shifted the discussion from EPOP to CBO projections for labor force participation rates. CBO's primary mandate is 10-year baseline budget projections, but they also generate long-term 30-year projections. Baseline projections assume current laws on spending and revenue remain largely unchanged. CBO projects a widening gap between Social Security outlays and revenues as outlays grow and revenues remain steady. Outlays are projected to rise from 5.2 percent of GDP in 2023 to 7 percent by 2097, while revenue holds around 4.6 percent.

Topoleski explained that CBO projects declining labor force participation due to population aging. A hypothetical scenario holding age-sex composition at 2023 levels showed a 3.4 percentage point higher participation rate than CBO projections. However, CBO projects growth in those aged 70 and older entering the labor force, while other age groups remain steady. She concluded by discussing CBO's labor force projection methodology and areas of reexamination, including the relationship between participation and education, tax policy changes, and labor market shifts like gig work.

Nicole Maestas, NBER Research Associate and Harvard Medical School professor, furthered the discussion by examining the 3.8 percentage point EPOP decline from 1999 to 2018. She cited adverse labor demand shifts from trade and automation, along with modest minimum wage and disability insurance effects. Rising education has offset these factors to some degree. 

With the share of the 16–64 population projected to fall, a question remains regarding whether the EPOP will follow suit. The 65+ share is projected to rise from 17 percent to 25 percent by 2060. An aging population impacts the economy by slowing labor force and productivity growth, reducing GDP growth. Technological progress could be beneficial by enabling work for older and disabled individuals, but so far it has caused more displacement than productivity gains. Older workers value flexibility, time off, and less physicality. Disability employment has strongly recovered following a pandemic-period dip, with increases concentrated in “teleworkable” occupations.

However, Maestas notes a couple of areas of concern presented by these aforementioned trends. The number of individuals identifying as disabled is rising, driven by a self-reported post-pandemic increase in concentration difficulties. There has also been a pronounced decline in the EPOP for men and women since 2000, interrupting strong pre-2000 gains for women. An aging population will also lead to an increasing need for long-term care for the elderly, as 70 percent of those over 65 will require assistance with basic functions at some point in their lives. Over half of long-term care is informal, provided by friends and family members. Research has found that informal long-term care reduces workforce participation, with patterns showing that women tend to leave work in order to provide caregiving, while men tend to take on caregiving responsibilities when they are already out of the workforce.

Stephen Goss, SSA Chief Actuary, noted this aging issue has been evident since birth rates began falling in 1964. By 2030, the baby boom generation will leave the working-age population and be replaced by lower birth rate generations, massively shifting demographics. While women's EPOP has increased across ages since 1970, men's has fallen from 1970 levels. 

Increasing female employment along with a declining under-20 population drove ratio gains between 1970 and 1990. However, since 1990, employment has steadily lagged behind growth in Social Security beneficiaries. To maintain the ratio of workers to Old Age, Survivors, and Disability Insurance (OASDI) beneficiaries, a substantial increase in employment above current projections would be required, as restoring male employment to 1970 levels alone would be insufficient to address the issue. Avoiding tax increases or benefit reductions would require employment rising over one-third above expectations, which Goss deems implausible.