Expected Changes in the Workforce and Implications for Labor Markets

This paper examines the likely effects of the aging of the baby boom on labor force attachment, unemployment, and wages. Labor market trends between now and 2020 are the focus of analysis, when the majority of the baby boom generation will confront its retirement decision. We begin by reviewing past labor force trends and discussing important limitations of existing projection methods. Key elements needed to project the consequences of the demographic shock facing the labor market are identified. The task of developing a fully specified economic model to examine the effect of the aging of the baby boom on the labor market is as yet incomplete. On the basis of the best available evidence, we suggest the following conclusions can be drawn: The trend towards earlier retirement will slow and perhaps reverse in the next few decades. Unemployment should fall among older workers and the aggregate full-employment unemployment rate should also decline as the baby boom ages. The aging of the baby boom will not depress wages substantially, either for older workers or for other demographic groups.