(The Center Square) – A surge in retirements, starting at the beginning of the pandemic, remains high but appears to be leveling out, according to an analysis by the Federal Reserve Bank of St. Louis.
The post, “Excess Retirements Continue Despite Ebbing COVID-19 Pandemic,” on the St. Louis Fed’s “On the Economy Blog” reported the U.S. labor force participation rate had a record decline of 3.2 percentage points at the start of the pandemic, from 63.3% in February 2020 to 60.1% in April. The rate quickly rebounded last year but remained a percentage point below the February 2020 level, according to the post by Miguel Faria e Castro and Samuel Jordan-Wood.
One potential explanation for the decline in the labor force participation rate and its failure to recover is more people retired than expected under normal conditions.
The economists created a model for specific demographic groups based on age, ethnicity, education and sex. It then reviewed how the decision to retire is influenced by labor market conditions, the level of Social Security retirement benefits for the specific age group and trends capturing how changes affecting the groups influence labor market decisions.
From January 2000 to February 2020, the research found retirements tracked as predicted. However, in the first three months of the pandemic, the share of retirees increased to 18.6% from the previous share of 18.2%, implying the number of people who decided to retire in May 2020 was one million more than predicted.
“The gap between actual and predicted shares of retirements continued to grow throughout the COVID-19 pandemic and peaked in December 2022, implying an estimated 2.95 million excess retirees in that month,” the report said.
The researchers found in 2023 the number of retirees began to level off when measured against predictions. However, the percentage of the civilian non-institutional population retiring was 18.6% during the first four months of 2023 compared to 16% in 2012.
“In 2023, the actual share has also decreased since the peak of 19.8% in December 2022,” the researchers reported. “As of April 2023, we estimate that there were approximately 2.4 million excess retirees in the U.S. Excess retirements are still well above our predicted trend, which may be contributing to a continued tightness in the labor market and low unemployment rate since the recovery from the pandemic recession.”