Population Aging, Labor Demand, and the Structure of Wages 
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boom generation ages, the usual historical pattern of a high ratio of younger workers relative to older workers has been replaced by a pattern of roughly equal percentages of workers of different ages.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.
Key Findings
- Econometric estimates imply that the size of one's birth cohort affects wages throughout one's working life, with members of relatively large cohorts (at all stages of their careers) earning a significantly lower wage than members of smaller cohorts. Estimated elasticities of wages with respect to the relative size of one's own cohort are generally between -0.05 and -0.10.
- The estimates indicate that the effect of labor-market experience on wages accumulates at a decreasing rate as workers gain experience, although this pattern becomes less pronounced as educational attainment increases. Generations prior to the baby boom experienced a more sharply upward-sloping wage-experience profile than that generated by the direct effect of experience on productivity because, in an economy with a high rate of labor-force growth, experienced workers were in short supply relative to entry-level workers.
Implications
Although the authors' model specification assumes that workers are paid the value of their marginal product, in the real world it is likely that social norms, legal constraints, morale factors, and other frictions result in wages deviating from marginal product. For older workers, this might induce impediments to employment if traditional wage norms associated with upward-sloping wage-experience profiles cause wages to exceed marginal productivity as workers age. Decreased employment stability, including semi-forced retirement, might be a consequence of this phenomenon.
This suggests a need for public policy to address obstacles to earnings and employment stability of older workers. Demographic change has simultaneously increased the desirability of workers prolonging their working lives and also, by making experienced workers more abundant relative to entry-level workers, made it more difficult and less lucrative for experienced workers to maintain their labor earnings. Social insurance policy might usefully pivot from focusing mainly on income replacement after full retirement, as is the case with Social Security, to also addressing the problem of diminished or unstable earnings prior to retirement.