The Impact of Demographic Change on U.S. Labor Markets The Impact of Demographic Change on U.S. Labor Markets

January 28, 2002

According to U.S. Census Bureau projections, the United States will face dramatic demographic changes over the next one hundred years. The population is expected to grow more slowly but age more rapidly, with the share of the population over 65 climbing to a succession of new record highs. Additionally, the United States will once again become a nation of immigrants. Well over half of the increase in the U.S. population will be caused by the inflow of new immigrants and their children. And because the source of the immigrant inflow has shifted from Europe to Latin America and Asia, this new wave will change the voice and face of America forever.

In this article (originally prepared for Seismic Shifts: The Economic Impact of Demographic Change, a June 2001 conference sponsored by the Federal Reserve Bank of Boston) the authors discuss the implications for U.S. labor markets of three projected demographic developments: population aging, the slow growth of the workforce, and increased immigration. In so doing, they emphasize the outlook for aggregate U.S. welfare, labor quality, and productivity growth. The authors examine the economic adjustments that might be triggered by these demographic trends, and they explore some policy implications, specifically regarding social insurance programs and immigration. Measures to extend the normal work life as lifetimes lengthen also warrant consideration. The authors’ findings suggest that, with the help of such measures, the U.S. economy will likely accommodate the real demands posed by these demographic changes without serious strain-although certain groups may bear a disproportionate share of the adjustment costs. Given the importance of productivity gains to increasing our standard of living as the population ages and the relative size of our workforce shrinks, steps to raise U.S. educational attainment head the authors’ list of policy recommendations.

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