Alternative Work and Reservation Wages

February 3, 2020

Working paper— Workers at all earnings levels would benefit from expanding Social Security. SCEPA proposes defaulting workers into “Catch-Up” contributions, where— starting at age 50— they would contribute an additional 3.1% of their salary. The increase in alternative work arrangements among older workers is due to low wages stemming from older workers' decreased bargaining power. 

The share of workers ages 55 and older who reported working in an alternative work arrangement increased from 15% in 2005 to 17% in 2017. Popular narratives explain the increase in alternative work to preference, especially among older workers. Yet, alternative work arrangements are associated with a decrease in reservation wages of $4.47-$4.53 per hour.
This working paper, "Reservation Wages and Alternative Work," finds the rise of alternative work arrangements, particularly among older workers, is due to a decrease in older workers' bargaining power, which lowers their ability to bargain for better pay and benefits. It finds evidence that low bargaining power and low retirement income, rather than preferences, are driving older workers into alternative work arrangements. The paper proposes changes in established government and academic surveys to better track work arrangements and suggests policies to increase financial preparedness for retirement.

Author: Michael Papadapoulos
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