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

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.