Population Aging, Labor Demand, and the Structure of Wages Population Aging, Labor Demand, and the Structure of Wages

By Michael Papadopoulos, Margarita Patria, and Robert K. Triest

One consequence of demographic change is substantial shifts in the age distribution of the working-age population. As the baby boom generation ages, the usual historical pattern of a high ratio of younger workers relative to older workers has been replaced by a pattern of roughly equal percentages of workers of different ages. One might expect that the increasing relative supply of older workers would lower the wage premium paid for older, more experienced workers.

What happens to the wages of older workers and the structure of wages more generally as the population ages has potentially important implications for public policy. Many analysts are convinced that longer working lives must be a key component of any solution to providing for the consumption needs of the old as the traditionally defined dependency ratio increases. The efficacy of this solution depends, in part, on the wage rates that older workers command in labor markets. If the wages of older workers fall as their ranks become crowded with the baby boomers, then continued work may seem a less desirable option to those contemplating retirement, and the earnings of those who do continue working will not go as far in financing their consumption.

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