Demography and Retirement: The Twenty-First Century

By Anna M. Rappaport; Sylvester J. Schieber | Go to book overview
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3
Expected Changes in the Workforce and Implications for Labor Markets

Phillip B. Levine

and

Olivia S. Mitchell


INTRODUCTION

While many have written about possible effects of the baby boom on the U.S. economy, few have recognized that this demographic transition provides analysts with a unique and valuable opportunity to investigate how the labor market works. Specifically, as baby boomers move up the age distribution, they impart a one-time shock to the supply of potential workers in each age bracket. Because this change is exogenous, many of the tools labor economists typically apply can utilized to predict how the aging of the baby boom will alter key labor market outcomes. Theoretical and empirical models which (either implicitly or explicitly) hold constant structural parameters in order to work through the effects of an exogenous shock are well-suited to address this issue.

The goal of this paper is to use economic tools to analyze the impact of the baby boom on three key labor market outcomes: labor force participation rates, unemployment, and wages. We concentrate mainly on this particular cohort's labor market outcomes, but also consider the implications of this group for the labor market as a whole. Since most of the prime-age population participates in the labor market, we focus analysis on labor market trends between the present and 2020, when the majority of the baby boom generation will confront the retirement decision. Consequently, an important topic of discussion will be retirement patterns of older workers and a consideration of whether the trend towards earlier retirement will continue in the next three decades. In addition, we briefly examine the effects of the aging baby boom on unemployment, and on wages for older workers as well as for workers of other ages.

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