Wednesday, December 15th, 2010

The Price of the Financial Crash

Here’s another measure of the price we paid for the housing bubble and subsequent financial implosion: delayed retirement.

The crisis vaporized a large slice of the retirement savings of many older workers. Economists at the Federal Reserve Bank of Chicago estimated that over half of workers aged 51-to-65 lost the equivalent of at least one year of income due to the decline in housing and stock prices from 2006 to 2010. One fifth lost at least 3 years worth of earnings; 6.6 percent of workers near retirement lost at least 8 years worth. Modeling the impact of the shock on the labor market, they concluded that absent the financial crisis, the labor participation rate of workers aged 51-to-65 would be 2.9 percentage points lower.

A back of the envelope calculation suggests that means 1.6 million older workers are still in the labor force, pushing back retirement to try to recoup their losses.

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