Casey Mulligan typically seems to argue that social safety net is too generous and accounts for unemployment, or so I thought. I may understand his point of view better here. People incentive to work is reduced because heavy debts will absorb additional income.
Copyright, The New York Times Company
The elderly are one group whose work hours now exceed what they were before the recession began. This pattern is most evident in the most depressed regions of the United States.
The recession has varied in different regions of the United States. In some areas – including Arizona, California, Florida, Hawaii, and Nevada – housing prices surged more dramatically in the early part of the 2000s than they did in the rest of America, and their economies fell hard when housing prices collapsed.
One view is that such areas experienced a deeper recession because their banks became overwhelmed with defaults and were unable or unwilling to make new loans to consumers and businesses. Without those new loans, demand collapsed more than it did nationwide, and jobs were especially difficult to find, even while people living in the area were especially eager to work.
Absent demand, just about all workers will have a tough time retaining a job or finding a new one.
Another view is that old loans are the problem, not newer ones. A significant fraction of households and businesses are typically so burdened with the debts they accumulated during the housing surge that they have little incentive to produce and work, because their creditors would get most, if not all, of the fruits of their labor.
In contrast to the no-new-loans-and-no-demand theory, old loans do not affect all workers; some are less burdened by debt. The elderly may fall in this category, because they are more likely to have saved money over their lifetimes and to have paid off their mortgages. Although some elderly working for debt-burdened employers may have lost jobs, on average the elderly in these areas should be working more because they have better incentives to do so.
The chart below compares 2007-10 changes in work hours for two areas –- the regions where housing prices rose and fell the most, on the left side of the chart, and the rest of the United States on the right. For middle-aged and younger people (blue bars), hours worked fell 12 percent in the large cycle regions and about 9 percent in the rest of the United States.
Hours worked by elderly people increased in both regions.
As I noted a few weeks ago, the average American elderly person worked more in 2010 than did the average elderly person before the recession began, even while work hours were down sharply for middle-aged and young people. The chart above shows that this is true even in the states that generally experienced the largest collapse during this recession.
Demand is not the only factor driving employment patterns.
When Times Get Tough, the Elderly Work
Casey B. Mulligan
Wed, 05 Oct 2011 12:10:00 GMT