Retiring Baby Boomers Driving Down Wages

| January 22, 2015 | 0 Comments | Email This Post Email This Post

largeworkersA Lot Of Those People Who Left The US Labor Force Since The Financial Crisis Just Aren’t Coming Back

Some people have speculated this is because demographic shifts mean higher-paid, older Boomers are retiring as younger, lower-paid millennials come into the labor force, bringing down the average wage even as worker wages go up.

Deutsche Bank’s Aditya Bhave touched on the demographic shift in a research note Friday. He pointed to the labor-force participation rate, which has been declining steadily since 2008. Some, though not all, of the decline there comes from demographic trends. That means that some of what looks like slack in the labor market is just from a huge group of people retiring at the same time.

But that means a meaningful part of that decline also comes from people dropping out of the labor force. Some of this, LaVorgna says, is also structural (it’s not coming back):

We estimate that demographics explain 39% of the decline in the labor force participation rate since 2008. Furthermore, data from a previous episode of declining labor force participation (2000-04) suggest that the effect of demographics is increasing, and that the portion of the decrease in participation that is not due to demographics also has a meaningful structural component. Together, these findings indicate that the labor force participation rate is unlikely to increase meaningfully even as cyclical strains on the labor market rapidly dissipate. In fact, a decrease in labor force participation, driven by demographics, might well serve as a tailwind in 2015 for the ongoing decline in the unemployment rate.

There’s also this:

That’s good for the unemployment rate, but is it good for the economy?

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