Here’s a great piece – and not just because I am complimented in it – by Susan Mangiero on the continuing problem of workforce participation, and the impact on retirement financing of a less than robust job market. As Susan has pointed out in other posts, less workers, in a nutshell, equals fewer taxpayers and current employees to support social security and private company retirement packages, thus hastening the cycle towards funding problems on those fronts. In a way, this gives rise to a hidden and subtle bias towards 401(k) and similar programs that, despite complaints about them such as their fees, at least have the virtue of being one worker/one funder/one beneficiary systems. I know that is a gross simplification, when you consider such issues as company matches, spousal distributions, etc., but the point is simple: such retirement plans rely on the participant in the workforce to plan ahead and fund it, and not on a shrinking labor pool to fund it in the future for that worker.
There are a lot of costs to a shrinking and/or severely curtailed job market, from the personal costs to those who can’t get jobs, to the long term reduction in earnings for those who must wait years beyond graduation to really get started on a profitable work life, to the inability of many to retire after job losses and stock market losses struck them in the latter part of their work lives. There is no getting around the fact, however, that, as Susan points out, a shrunken workforce puts financial pressure on the retirement structure across the board, from a reduction in tax rolls for the funding of public pensions to a distortion of the worker/retiree leverage upon which social security rests.
It is, in the end, important to remember the linkage between jobs and the retirement scheme, whether that is pensions, social security, 401(k)s or some as yet undreamed of replacement. The latter does not exist in a vacuum and, as Susan has pointed out, is closely tied to the former.