The Evolution of Retirement: An American Economic History, 1880-1990

EH.NET BOOK REVIEW Published by EH.NET (December 1998)

Dora L. Costa, The Evolution

of Retirement: An American Economic History,
1880-1990. Chicago:

University of Chicago Press, 1998. Xiii + 234 pp. $40.00
(cloth), ISBN:

0-226-11608-5.

Reviewed for EH.NET by Brian Gratton, Department of History, Arizona State

University.

“In the words of King Macbeth, let us die in harness.” Sigmund Freud

(1910)

As historians drift off into a postmodernist Land of Oz, social

scientists have emerged as the only scholars treating a number

of

critical issues. The academy’s tragicomedy has its good points, and

Dora Costa’s analysis of declining labor force participation among the

elderly displays several of these. First, Costa restates an axiom that,

however obvious on the face of it, needs reemphasis: free money from the

state encourages able-bodied persons to exit the labor force. This

reminder cautions us against giving too much credit to ageism and other

cultural forces in the history of older persons. Attitudinal factors

were all the rage, not only among the first historians of old age, but

also among the reformers who eventually built the Social Security

system. Whether such factors were decisive in causing change is another

matter.

Second, Costa presents a strong case for pure income effects in

reducing labor force participation during the twentieth century.

Indeed, income effects can be observed in household and family

arrangements

as well, since pension income raised the probability that

the elderly lived separately from their children. Third, she provides a

very useful critique of other explanations, including a novel and

insightful argument that health problems cannot be used to explain

secular declines in labor force activity.

All this is built upon a marvelous and still emerging data set that

links Civil War pension records to those in the United States Census and

other sources. The

data set permits Costa to carry out analyses that

are much better specified than those heretofore used and represent an

important advance in the quality of evidence available to scholars (as

one presumes they soon will be). The rich body

of evidence nonetheless

also constitutes a problem. The central analytic difficulty in the book

is that the bulk of the analysis of a 110 year period (1880-1990) rests

upon data drawn from a very peculiar pension system for a very

particular set of men in 1900 and 1910. The evidence is doubly

difficult to interpret since it pertains largely to individuals already

receiving pensions, many of whom qualified by age, and perhaps by lack

of labor force participation. Costa treats this problem in an ingenious

way for 1900 and 1910 regressions, but relying on these findings to

contemplate such themes as current leisure activities among the elderly

is a stretch. Chapters still more remote from the lab or force decision,

like that on the political economy of pensions, are largely derivative.

Still, the core chapters represent really important work, and the

strong findings for pension effects add to our understanding of the

importance not just of income, but of pension income, in changing human

behavior. Like many other economists, Costa argues that Social Security

itself was of minor importance. However, Old Age Insurance effects are

notoriously difficult to mea ure. The denigration of Social Security

effects also rises from a failure to take other literatures seriously.

Costa is more sensitive than most historical economists to those outside

the fraternity, but still fails to recognize certain

very useful

findings in social history. Imprecise as they may be about the details,

historians like William Graebner convey an essential truth when they fix

upon the Social Security Act as a turning moment in our society, and one

which encouraged an utterly new view of the life cycle. The problem

begins with historical economists’ insistence on using the term

retirement for changes in labor force participation, a habit that has

cost them many an intelligent reader

. (Costa’s rendition is especially

convoluted [7].).

Two last points: 1) there was no decline in earnings with age

among employed workers in the industrial period (12,16,33); 2) the

author exhibits wonderful taste in the epigrams at the beginning of each

chapter. Her book demonstrates that the elderly have paid no attention

to Freud or to Shakespeare.

(Costa is currently Associate Professor of Economics at the

Massachusetts Institute of Technology and a faculty research fellow of

the National Bureau of Economic Research.)

Brian Gratton

Department of History

Arizona State University

Brian Gratton is the author of “The Poverty of Impoverishment Theory:

The Economic Well-Being of the American Elderly, 1890-1950,” Journal of

Economic History, (March 1996), 56(1):39-61.