Good morning, Chairman Casey, Ranking Member Braun, and members of the Senate Special Committee on Aging. It is an honor to testify before you.
My name is Liya Palagashvili, and I am an economist at the Mercatus Center at George Mason University. I work on labor economics and public policy, with a focus on the independent workforce and the evolving nature of work.
Today, my testimony focuses on how independent work opportunities are increasingly valuable to older workers, especially at time when the broader macroeconomic trends are troubling. My three key themes are:
The independent workforce is a diverse and growing sector of the labor market, providing income opportunities for millions of older workers.
With rising inflation and a gloomy economic outlook, older workers face a troubling future.
To help older workers during this time, policies and regulations should remain favorable toward non-traditional employment arrangements, such as independent contracting, freelancing, gig work, and self-employment.
Independent Work Opportunities for Older Workers
Independent work has long been the main source of income opportunities for retired or older workers who have moved past the “9-5” routine but remain open to transitioning to part-time or short-term work. This includes workers who are independent contractors, freelancers, gig workers, on-call workers, or self-employed workers.
According to a Bureau of Labor Statistics survey in 2017, older workers were more likely to be independent contractors than any other age group.1 In total, the share of 55-and-older workers accounted for close to 40 percent of all independent contractors in 2017. Indeed, one out of every three independent contractors were 55 or older, while less than a quarter of workers in traditional employment were 55 or older. The survey highlighted that independent work opportunities for older workers are found across a variety of different occupations and roles. For on-call workers ages 55-64, for example, they were most likely to be substitute teachers at elementary and secondary schools.
A National Bureau of Economic Research study published in 2019 provided an in-depth economic analysis of older workers and found that the incidence of self-employment among older workers was even higher than was previously measured. The figure below illustrates the reality that the likelihood of individuals being independent workers increases with age. For example, conditional on working, the share of individuals with their main job as self-employment is less than 20 percent for the age groups 18-29 and 30- 49. But the share of individuals with self-employment income as a main job is 30 percent for ages 60-64, 45 percent for 65-69, and almost 60 percent for those aged 70-74.
Post-pandemic, we have seen a continued growth of independent and self-employed opportunities, with older workers again comprising the largest share of this workforce.
The reason we see a high prevalence of older workers in independent work is because as individuals approach retirement, they have may have financial or personal reasons for continuing to work but they may need to reduce their work hours or pursue more flexible work arrangements. These type of short-term, flexible, or reduced hour arrangements may be more difficult to find within traditional employment jobs, especially for older workers. For example, a study by economists Katherine Abraham and Susan Houseman reported on a survey which found that many employers do not offer employees nearing retirement age the option to reduce their hours on their current job.
Therefore, for many older workers, independent work is an attractive way to ease into retirement or earn income when they are no longer part of the full-time, employment workforce. This is especially appealing to older individuals who already have healthcare coverage.
Uncertain Economic Environment for Older Individuals
The Federal Reserve announced last week that a recession is expected in the coming months. At the same, we are still seeing high prices for basic goods and necessities. This is worrisome for older workers whose employment prospects are generally poorer. Many older Americans live on fixed incomes or limited savings. With high prices and an uncertain economic environment, some older or retired workers may have to either prolong retirement or reenter the labor market.
According to a Nationwide survey, about 40 percent of workers over the age of 45 said they now will have to delay their retirement as a result of inflation and the economic environment. Several news outlets have profiled stories of older and retired workers who are expecting to return to work at age 75 to cover the costs of food, rent, medicine, and utilities. Indeed, a recent survey in July of 2022 highlighted how workers were concerned about inflation and their abilities to afford basic expenses.
While rising prices affect all households, they are especially burdensome for older workers.
Policies that Support Independent Work Also Help Older Workers
This highlights the importance of supporting and welcoming independent work opportunities in our economy. However, there are federal policies and regulations that seek to restrict independent work and self-employment opportunities—such as the Department of Labor’s (DOL) proposed regulations on independent contractors.
The DOL proposing regulation to restrict independent work with hopes that organizations will hire more workers as official employees instead. At first glance, it may seem like a win for those who might be reclassified as employees.
However, because older workers voluntarily leave employment to pursue independent work opportunities, having fewer independent work opportunities available to them is not a “win-win” situation. Moreover, it is also impossible for every single independent work opportunity to turn into full-time employment offer.
Let me provide you with a recent example to demonstrate this point.
When California passed AB5, which is a similar law that restricts independent work opportunities, lawmakers lauded it as a win for workers. But some of those same lawmakers changed their minds later when news outlets like the New York Times and the LA Times highlighted how AB5 had led to job losses, especially among freelance musicians, singers, truck drivers, translators, editors, and writers.
Because independent work provides a vital source of income for older workers who cannot take on traditional employment, restricting independent work will disproportionally harm older workers. At a time when inflation is high and traditional employment opportunities are likely to become scarcer, it’s unwise for the DOL to also limit independent work opportunities. Eliminating independent work will mean that older workers will have fewer opportunities to earn income, further increasing financial stress in their households. Supporting expanding opportunities for independent work, on the other hand, will benefit older American workers.