Boomer Retirement Could Pull Down U.S. Standard of Living

January 14, 2008 ( - The resulting reduction in labor force growth in the United States brought on by the Baby Boomer retirement wave of the next decade or more may make it increasingly difficult to maintain growth in our standard of living because there will be fewer workers generating goods, services, and income for each resident.

Economists Riccardo DiCecio, Michael T. Owyang, and Christopher H. Wheeler and researcher Kristie M. Engemann came to this conclusion in their look at changing trends in the labor force for the January/February issue of Review, the Federal Reserve Bank of St. Louis’ bi-monthly journal of economic and business issues. The principal challenge of a declining labor force participation rate (LFPR) will be to find ways to enhance the productivity of the individuals that do work, the report said.

“[S]uccessive generations will be unable to compensate for the baby boomers’ exit from the labor force and U.S. labor supply will decline,” the report said. The report authors suggest investing in education, physical capital accumulation, and research and development as ways to enhance labor force productivity.

The LFPR is constantly in flux, but it increased dramatically over the post-World War II period and there has been a modest drop in the overall participation rate within the past six years, the study found. The continued decline in the teen LFPR – which is projected to decline from 43.9% in 2004 to 39.3% in 2014 – is a factor in the drop, but the aging of the baby boomers is likely to lower aggregate participation rates for the next several decades.

As baby boomers retire, the fraction of the population in the prime-age working group is projected to fall from 55.3% today to 51.1% by 2014 and 47% by 2030. While labor force participation by people age 55 and older is projected to increase (from 38% in 2006 to 41% in 2014), it will only partially offset the effect of the baby boomer exit.

The report is here .