Economic Review
Third Quarter 2002 

The Puzzle of Later Male Retirement
By Richard Johnson 

For decades until 1985, the share of older American men who worked for pay trended downward. Since 1985, though, that share has been stable or rising. By 2001, the new trend in male retirement behavior had added 2 million workers to the U.S. labor force. Since the number of older men in the United States will increase dramatically as the baby-boom generation ages, the new trend could become even more significant for the U.S. economy in the future.

Understanding male retirement behavior is important to both monetary and fiscal policymakers. Later retirement affects monetary policy by increasing potential output. It also affects fiscal balances by boosting tax revenues and reducing the cost of earnings-tested benefits such as Disability Insurance and Medicaid.

Economists have put forth several theories to explain why American men are retiring later. One theory is that Social Security reforms have encouraged older men to work more. Another is that the decline in the number of workers with defined-benefit pensions has enabled men to continue working longer. A third theory is that the slower growth of the overall U.S. labor force has increased older men’s employment opportunities.

Johnson tests whether these theories explain the changed male retirement trend. He concludes that Social Security reforms have increased the labor supply of men aged 65 and older, but that the abrupt change in the trend of male retirement ages in 1985 remains a puzzle.

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Do Primary Energy Resources Influence Industry Location?
By Jason P. Martinek and Michael J. Orlando 

By choosing to locate in a particular place, firms create employment opportunities for workers living there. And the wages they pay increase demand for local goods and services, creating additional job opportunities and further increasing the tax base. Consequently, state and local governments go to great lengths to encourage firms to locate within their boundaries.

In recent years, volatility in energy markets due to deregulation and events in the Middle East have increased the role that energy resource endowments may play in firm location. Thus, economic development agencies in energy producing states have highlighted their natural advantages as a way to attract and retain businesses. Yet there is scant evidence that firms base their location decisions on the availability of primary energy resources, such as coal, oil, and natural gas.

Martinek and Orlando explore the role of primary energy resources in industry location. They examine the relationship between state energy supplies and employment in energy-intensive industries and suggest there is a limited relationship between the production of primary energy resources and industry location. State energy supplies are associated with the location of only the most energy-intensive firms. In other energy-intensive industries, firm location decisions appear largely unresponsive to state energy conditions.

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Building the Rural Economy with High-Growth Entrepreneurs
By Jason Henderson 

Entrepreneurs create economic growth in their communities by forming new firms. Each year during the past decade, more than half a million businesses were started that added new jobs in the United States. In the 1990s, during the longest economic expansion in the United States economy, the majority of new jobs were created by small and medium-sized entrepreneurs operating high-growth businesses.

Because entrepreneurs are such a wellspring of growth in the economy, many rural policymakers have shifted their long-time focus of recruiting existing firms, such as branch plants, to developing new entrepreneurs. New policies generally support a wide range of entrepreneurs. However, policies often fail to recognize that the benefits of entrepreneurs can vary dramatically, depending on the entrepreneur’s desire to build a high-growth business. And rural areas often lack these high-growth entrepreneurs.

Henderson reviews entrepreneurial activity in rural America and discusses some of the new ways policymakers are beginning to encourage high-growth entrepreneurs in their communities. After discussing the benefits entrepreneurs offer communities, he examines the pattern of entrepreneurship in rural areas and the difficulties many rural communities face in supporting high-growth entrepreneurs. Finally, he discusses some of the policies supporting the startup and growth of this valuable resource.

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