The Effect of the COVID-19 Pandemic on Expected Labor Supply

Published: 2023

Abstract

The pandemic led to a sharp increase in unemployment, which, in previous literature, has been associated with a decline in the labor supply of older individuals: Unemployed persons retire rather than attempt to return to employment. But government programs softened the impact of unemployment during the pandemic. Further, the pandemic changed the amount and nature of work, particularly job flexibility, which may permit later retirement. Thus, the overall effect on future or longer-term labor supply is ambiguous. To resolve that ambiguity, we analyzed data from the Health and Retirement Study on the subjective probability of working at age 62 and several other ages as observed prior to the pandemic and in 2020. When compared with expectations from 2018, we found little if any decline in the expectations of working at age 62 or 65 but more declines in the expectation of working at age 70. The interpretation would be that the pandemic will have no long-run impact on labor supply at typical retirement ages (62 or 65), but that it may lead to an end in the long increase in working past age 70. The certainty of this interpretation, however, is reduced by the dynamic nature of the pandemic: Expectations of future work declined during the course of the survey year, suggesting that the average over the entire year is not representative of post-pandemic expectations. Expectations decreased for Black and Hispanic persons, suggesting that the differences in retirement ages of white persons and of Black and Hispanic persons may continue to increase.

Key Findings

    • Overall, the COVID-19 pandemic appears to have led to only a small reduction in expectations of future labor supply at typical retirement ages (62 and 65) as measured by the change in expectations between 2018 and 2020.
    • There were somewhat larger reductions in expectations of working at age 70 possibly signaling the end of a long upward trend in working past typical retirement ages.
    • Expectations increased modestly among women but decreased among men. This suggests that the long-term trend of increasing retirement ages of women relative to men will continue.
    • Expectations decreased for Black and Hispanic persons. This suggests the differences in retirement age between white persons and Black and Hispanic persons may continue to increase.
    • There was little change over the course of the pandemic in Social Security benefit claiming. This suggests that unemployment did not lead to early claiming of Social Security benefits, possibly because of the increased generosity of unemployment benefits.
    • The dynamic nature of the pandemic implies that expectations continued to evolve into 2021 so that they will need to be updated post-pandemic.

Citation

Hudomiet, Péter, Michael D. Hurd, and Susann Rohwedder. 2023. “The Effect of the COVID-19 Pandemic on Expected Labor Supply.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2023-468. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp468.pdf