As the Workforce Ages: Costs, Benefits and Policy Challenges.

The papers in this volume provide a broad, well rounded treatment of topics associated with the aging process. It consists of eleven essays from a conference at Cornell University's School of Industrial and Labor Relations. These papers focus on three different aspects of an aging workforce.

Section one focuses on aging workers around the world. In the first paper, "Demographic Change and the Destiny of the Working-Age Population," Martha Farnsworth Riche examines the size and magnitude of the change to an older working age population. Riche shows that changing assumptions about only three variables, births, deaths, and net migration, can cause major differences in population projections.

Riche next lays the framework for examining demographic changes that are currently in progress: The population will increase, and it will age. Moreover, consistent with a greying population is a greying workforce. A greying workforce, however, may or may not be a cause for alarm. Based upon other changes in the population Riche suggests the need to closely watch the developments, such as the growth in the age gap between major race and ethnic groups. For example, in 2010, the average non-Hispanic white will be 41.4 years, the average black will be 31.4 years and the average Hispanic 29.3 years. Furthermore, although 71 percent of Americans will be white in 2000, fewer than two in three children will be white. Riche notes that these projections call for an assessment of the potential for a new decrease in labor productivity.

Next, Phillip B. Levine, "Examining Labor Force Projections for the Twenty-First Century," argues that the existing methodology for projecting the labor force is flawed, because the standard technique is to extrapolate past trends in labor force behavior into the future. He suggests the development of an economic model of labor force behavior to project changes in the labor force.

Levine examines the hypothesis that social security and pension benefits are related to changes in labor force participation rates, abstracting from changes in wealth. He assumes that workers similar in age should have the same amount of wealth. He shows that the difference between the Labor Force Participation Rates (LFPRs) of workers age 60 to 61 and 62 to 64 changes as the social security average primary insurance amount (PIA) changes. Since the younger group is not eligible for social security retirement benefits, an increase in benefits should increase the gap in the LFPRs. Although the results do give weight to the hypothesis, the findings are inconclusive. For example, to hold wealth constant, it would have been better to make the age group more homogeneous, perhaps by using a sample of only white males.

The third paper, "Population Aging and Work Rates of Older Persons: An International Comparison," by Robert L. Clark, places the topic of an aging labor force into an international context, with an overview of worldwide population trends. Clark examines differences between developed and developing regions and the implications of demographic changes for an aging work force.

Section two discusses several additional facets of the labor market for older workers. Chapter 5, "Restricted Job Opportunities and the Older Worker" by Robert M. Hutchens, examines whether and why job opportunities for older workers differ from those of younger workers within a theoretical job search framework.

Several testable propositions follow from this framework: (1) Older workers will receive less pay if they are hired because their training costs will probably be spread over a shorter time; (2) older workers will tend to find new jobs in industries and occupations characterized by short job durations; (3) older workers seeking a new job will be forced to change industry. Hutchens tests these and other propositions with survey data on workers displaced as a result of plant closings.

In general, Hutchens finds no support for the proposition that older workers are more likely to change industry than younger workers. In fact, as workers age, their probability of changing industry and occupation falls. Thus, the evidence indicates that older workers do not face restricted opportunities in their original industry and occupation.

The next paper, "The Japanese Approach to Finding Jobs for Older Workers," by Marcus Rebick, examines the proposition that Japanese workers are able to use more of their human capital after mandatory retirement, either through reemployment with a career employer or through employment elsewhere in the same subcontracting group. Despite the young age for mandatory retirement in Japan, the labor force participation rates of Japanese men and women over the age of 60 are among the highest in the industrial world.

Chapter 7, "Health Insurance Choice and the Older Worker," by Melissa W. Barringer and Olivia S. Mitchell, is concerned with whether older workers differ from younger workers in their selection of health insurance plans in a flexible benefits plan. The objective is to determine how the demand for health insurance might change as the workforce ages.

Using firm data, Barringer and Mitchell obtained the following results: if the workforce aged by ten years, from 40 to 50, there would be a substantial increase in the demand for a traditional fee-for-service plan; both older workers and younger workers, faced with a range of premiums will choose the less expensive option other things equal; for all ages, a higher deductible reduces the chance that a given plan will be selected; more highly paid workers are more likely to select a traditional fee-for-service plan over other options.

Section two concludes with a paper by Alan L. Gustman and Thomas L. Steinmeier, "Cost-of-Living Adjustments in Pensions," which estimates the effects of inflation, and COLA provisions, on the valuation of pensions and the incentives or disincentives these provisions may create. Using two major longitudinal data sets, they estimate the changes in pensions received by retirees resulting from COLAs. Pension COLAs appear to have been less important in the 1980s than the 1970s, although through 1987 they covered approximately half the cost of living increases. Gustman and Steinmeier also found no evidence suggesting that pension COLAs have any effect on incentives to retire, move, or shirk.

The last section of the book examines policy challenges of an aging workforce. In Chapter 9, "Social Security and Older Workers," Michael V. Leonesio surveys selected economic retirement studies to examine evidence on the way social security rules and regulations influence retirement behavior. Leonesio states that in spite of shortcomings in most of the empirical work, the evidence clearly indicates that the social security program has contributed to the decline in the labor force participation of older men. Moreover, evidence on the effect of the retirement or earnings test on labor supply, was not what might have been expected. These studies suggest that eliminating the retirement earnings test would probably not induce more people to work.

Because the aging process is generally associated with more individual health and disability problems, policies designed to influence the labor force participation rate of older workers should examine what is being done to keep the handicap working. Chapter 10, "U. S. Policy Toward Workers With Handicaps", by Richard V. Burkhauser, is a move in this direction.

Differences among countries lead Burkhauser to suggest that understanding the process to disability requires much more investigation into both the medical and social context during the process from poor health to disability.

The final paper, "Fiscal Challenge of an Aging Population", Gary Burtless presents some forecasts of the budget implications for an aging population, then discusses the capacity and, perhaps more important, the willingness of the nation to pay for programs that will benefit the elderly when the baby-boom generation retires.

This volume provides an eclectic collection of papers examining various topics on an aging workforce. The papers range in content from reviews of the literature to original empirical research, to examination of policy alternatives. Overall, this collection of papers is a good place to begin an investigation of this important topic.

Bruce H. Dunson Metrica, Inc. and Texas A&M University