Effects of Demographic Trends on Labor Supply and Living ...

T H E R E T I R E M E N T P R O J E C T

Occasional Paper Number 2

URBAN INSTITUTE

Eric Toder and Sandeep Solanki

Effects of Demographic

Trends on Labor Supply

and Living Standards

T H E R E T I R E M E N T P R O J E C T

Occasional Paper Number 2

Eric Toder and Sandeep Solanki




Copyright © June 1999.The Urban Institute.All rights reserved. Permission is grantedfor reproduction of this document, with attribution to the Urban Institute.

The nonpartisan Urban Institute publishes studies, reports, and books on timelytopics worthy of public consideration.The views expressed are those of the authorsand should not be attributed to the Urban Institute, its trustees, or its funders.

ABOUT THE SERIES

THE RETIREMENT PROJECT IS A MULTIYEARresearch effort that addresses the challenges and opportuni-ties facing private and public retirement policies in thetwenty-first century. As the number of elderly Americansgrows more rapidly, Urban Institute researchers are exam-ining this population’s needs. The project assesses howcurrent retirement policies, demographic trends, andprivate-sector practices influence the well-being of older individuals, the economy, and government budgets.Analysis focuses on both the public and private sectors andintegrates income and health needs. Researchers are alsoevaluating the advantages and disadvantages of proposedpolicy options. Drawing on the Urban Institute’s expertisein health and retirement policy, the project provides objec-tive, nonpartisan information for policymakers and thepublic as they face the challenges of an aging population.All Retirement Project publications can be found on theUrban Institute’s Web site, at http://www.urban.org/retire-ment. The project is made possible by a generous grantfrom the Andrew W. Mellon Foundation.

The Retirement Project

Contents

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . .ivIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Growth in Labor Supply Adequacy, 1965–1997 . . . . . .2Labor Supply Projections . . . . . . . . . . . . . . . . . . . . . .5Projections of Consumption Needs and

Labor Supply Adequacy . . . . . . . . . . . . . . . . . . . .15Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

FIGURES AND TABLES

Table 1A. Historical Labor Supply Factors . . . . . . . . . .2Table 1B. Calculation of Historical Needs-Based

Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Table 2. Historical Labor Force Adequacy Measures . . .4Table 3A. Factor Analysis: Contribution to

Total Change in Labor Force per Capita . . . . . . . . .6Table 3B. Factor Analysis: Contribution to

Total Change in Labor Force per Needs-BasedPopulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Table 4A. Mean Annual Earnings per Worker . . . . . . . .7Table 4B. Mean Annual Earnings per Capita . . . . . . . .7Table 5. Historical Labor Force Adequacy Measures,

Weighting Workers by 1997 Relative Earnings . . . . .8Table 6A. Factor Analysis: Contribution to

Total Change in Labor Force per Capita . . . . . . . . .9Table 6B. Factor Analysis: Contribution to

Total Change in Labor Force per Needs-BasedPopulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Table 7A.Population Projections . . . . . . . . . . . . . . . .10Table 7B. Population Projections . . . . . . . . . . . . . . . .10Table 8. 1997 Labor Force Participation Rates . . . . . .11Table 9A. Base Labor Force Projections . . . . . . . . . . .12Table 9B. Base Labor Force Projections . . . . . . . . . . .12Table 10A. Labor Force Projections Adjusted

for Higher LFPRs of Postwar Female Cohorts . . . .12Table 10B. Labor Force Projections Adjusted

for Higher LFPRs of Postwar Female Cohorts . . . .13

Table 11A. Indexed Labor Force (Earnings-Weighted)Adjusted for Higher LFPRs of Postwar FemaleCohorts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Table 11B. Indexed Labor Force (Earnings-Weighted)Adjusted for Higher LFPRs of Postwar FemaleCohorts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Table 12. Educational Attainment of Total Population . . . . . . . . . . . . . . . . . . . . . . . . .14

Table 13A. Relative Mean Annual Earnings per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Table 13B. Relative Mean Annual Earnings per Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Table 14A. Cohort Education-Earnings Index . . . . . .18Table 14B. Cohort Education-Earnings Index . . . . . .18Table 15A. Indexed Labor Force (Earnings-Weighted)

Adjusted for Cohort Educational Attainment and for Higher LFPRs of Postwar Female Cohorts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Table 15B. Indexed Labor Force (Earnings-Weighted)Adjusted for Cohort Educational Attainment and for Higher LFPRs of Postwar Female Cohorts . . . .19

Table 16A. Base Summary Measures . . . . . . . . . . . . .20Table 16B. Base Summary Measures . . . . . . . . . . . . .20Table 17A. Summary Measures Relative to

Total Population . . . . . . . . . . . . . . . . . . . . . . . . .21Table 17B. Summary Measures Relative to

Total Population . . . . . . . . . . . . . . . . . . . . . . . . .21Table 18A. Summary Measures Utilizing

Needs-Based Population . . . . . . . . . . . . . . . . . . .22Table 18B. Summary Measures Relative

to Needs-Based Population . . . . . . . . . . . . . . . . .22Table 19A. Required Changes in Labor Force

Participation Rates . . . . . . . . . . . . . . . . . . . . . . .23Table 19B. Required Changes in Labor Force

Participation Rates . . . . . . . . . . . . . . . . . . . . . . .23Table 20A. Life-Expectancy-Adjusted Labor Force

Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Table 20B. Required Changes in Labor Force

Participation Rates . . . . . . . . . . . . . . . . . . . . . . .25Table 20C. Life-Expectancy-Adjusted Labor Force

Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

ABOUT THE AUTHORS

ERIC TODER IS A SENIOR FELLOW AT THEUrban Institute’s Income and Benefits Policy Center.Before joining the Urban Institute, he held a number ofpolicy advisory positions in the U.S. government and over-seas. Between 1993 and 1996, Dr.Toder served as deputyassistant secretary for tax analysis in the U.S.Department ofthe Treasury. He has also served as deputy director of theOffice of Tax Analysis for domestic taxation and as afinancial economist on the Treasury’s business taxation staff.He was deputy assistant director for tax analysis at theCongressional Budget Office from 1984 to 1988 and againfrom 1991 to 1993. Between 1988 and 1991, he was aconsultant to the New Zealand Treasury, where he helpeddevelop New Zealand’s tax reforms.

Sandeep Solanki is a research assistant in the UrbanInstitute’s Income and Benefits Policy Center, where hisresearch interests include retirement and tax policy. He ispresently involved in analyzing the economic impact of anaging population and government surpluses.

INTRODUCTION

DEMOGRAPHIC PROJECTIONS SUGGEST THATthe percentage of the total population in the workforcewill decline as the baby boomer birth cohorts (1946–1964)reach retirement age and will continue to decline there-after.The main factors in this decline are reduced fertilityrates since 1964 and increased life expectancy for adultAmericans. The resulting decline in the fraction of thepopulation working will make living standards lower thanthey would otherwise be.

At the same time that the labor force is declining inrelation to the population, the composition of the non-working population will also be changing. The share ofelderly dependents in the population will increase, whilethe share of dependent children will decrease. As a result,the ratio of labor supply to the adult population willdecline at a much faster rate than the ratio of labor supplyto the total population.The increasing share of the elderlywill place a great strain on the federal budget because ofthe growing proportion of federal spending allocated forprograms serving retirees (Social Security, Medicare, andthe long-term care component of Medicaid).This growthin the number of elderly dependents will also decreaseoverall living standards more than an equivalent growth inthe number of child dependents would, to the extent thatconsumption requirements of older people are higher thanconsumption requirements of children.

Labor supply is an important determinant of totalnational output.The other determinants are capital and thestate of technological knowledge. Capital stock per work-er may increase in the next decade as the baby boomersaccelerate wealth accumulation in preparation for retire-ment but could stagnate or decrease afterward because ofincreased total dissaving by the larger cohorts of retirees.The relationship between demographic trends and the rateof technical change is unclear, although some researchsuggests that lower labor supply growth may acceleratelabor-saving technical change (see Cutler et al. 1990). Inspite of the decline in labor supply per capita, a continua-tion of even the rather modest productivity growth rates

of the past quarter-century would raise output per workerenough by the middle of the next century to make outputper capita significantly higher than it is today. But thedecline in workers per capita would make growth in out-put per capita less than it would otherwise be.

The predicted unfavorable demographic trends in thetwenty-first century will follow a long period of favorabledemographic trends that have raised living standardsthroughout most of the post–World War II period and willcontinue to do so through the first decade of the nextcentury. Adjusting to the increase in elderly dependencywill be harder than it would otherwise be to the extent thatpeople’s expectations have been conditioned on economicgrowth rates that are in part a consequence of this demo-graphic dividend.

This report shows how demographic trends have affect-ed an index of “adequacy” of labor supply between 1965and 1997 and then projects changes in the same index until2040. Labor supply adequacy is measured as the ratio ofeffective labor supply to total consumption needs. Wedevelop alternative baseline projections of effective laborsupply after 1997. The first measure assumes that laborforce participation rates (LFPRs) remain constant overtime for males and females in each age group. We thenadjust this base labor supply measure to account for differ-ences among age and gender groups in earnings per work-er, expected changes in earnings resulting from differencesamong birth-year cohorts in average education level, andthe effect of increases in LFPRs of post-1945 birth cohortsof women on future LFPRs of elderly women.To gener-ate a measure of labor supply adequacy, we compute theratios of alternative measures of labor supply to two mea-sures of overall consumption needs: (1) total populationand (2) an age-weighted population index that assumesthat, in comparison with working-age adults, per capitaconsumption requirements are lower for people under age20 and higher for people age 65 and older.

On the basis of these projections, we calculate theincrease in labor force participation of older workersrequired to keep the adequacy of labor supply from fallingbelow 1997 levels.We then display an alternative projection




T H E R E T I R E M E N T P R O J E C T2

of labor supply for the years 2020 and 2040, based on anassumption that people will respond to future increases inlife expectancy by remaining in the workforce longer.

GROWTH IN LABOR SUPPLYADEQUACY, 1965–1997

Labor supply has grown faster than both total populationand an index of consumption needs between 1965 and1997.This growth in labor supply adequacy reflects bothdemographic changes and increases in LFPRs within ageand sex groups.While the population shares of age groupswith relatively higher participation rates increased duringthis period, LFPRs of some groups (young and middle-aged women) increased and those of other groups (oldermales) declined. On balance, changes in LFPRs increasedoverall labor supply per capita. Considering both changesin age composition and changes in participation rates,both males and females contributed positively to theincrease in labor force adequacy.Women, however, wereresponsible for over 80 percent of the increase.

Factors Influencing Labor Supply GrowthPopulation shares. The maturing of the baby boom gener-ation increased the population shares of working-agepeople between 1965 and 1997 (top panel of table 1a).The share of the population between ages 15 and 54increased from 50.4 percent in 1965 to 57.2 percent in1997. The proportion of people over 55 also increased,albeit modestly, from 17.7 percent in 1965 to 20.8 per-cent in 1997, mainly reflecting increases in longevity.The share of children under 15 dropped from 31.8 per-cent in 1965 to only 22.1 percent in 1997 because of thedecline in birthrates after 1964.

Labor force participation rates. LFPRs increased dramati-cally for younger and middle-aged women and declinedfor older men (bottom panel of table 1a).For women ages15 to 34, the LFPR increased from 37.8 percent in 1965to 66.9 percent in 1997. More than 90 percent of thisincreased participation rate had already occurred by 1985.For women ages 35 to 54, the LFPR increased from 47.8percent in 1965 to 77.1 percent in 1997. About 90 per-cent of this increase took place between 1965 and 1990.The increase in labor force participation of women more

TABLE 1A.Historical Labor Supply Factors

1965 1970 1975 1980 1985 1990 1995 1997

Population Shares (%)0–14 31.8 28.5 25.5 22.8 21.9 22.0 22.3 22.115–34 26.9 30.0 33.2 35.2 34.4 32.3 29.5 28.835–54 23.5 22.8 21.8 21.5 22.8 25.1 27.6 28.455–74 14.4 15.0 15.5 16.1 16.1 15.5 15.0 15.175+ 3.3 3.7 4.0 4.4 4.8 5.2 5.5 5.7

Labor Force Participation Rates (%)Total

15–34 55.4 59.5 64.2 69.5 71.4 72.8 71.8 71.835–54 71.3 73.5 73.8 77.6 80.5 82.9 82.9 83.655–74 46.5 47.1 42.0 40.2 38.0 38.2 38.8 40.775+ 7.7 6.5 5.4 4.2 3.9 4.3 4.7 4.5

Male15–34 72.6 73.1 75.8 78.7 78.1 79.0 77.4 76.535–54 95.0 94.5 92.5 92.4 91.9 91.8 89.6 90.055–74 65.8 65.2 57.3 53.6 48.6 47.4 46.6 48.375+ 14.0 11.3 10.0 8.0 7.5 7.1 7.7 7.7

Female15–34 37.8 45.5 52.3 60.0 64.5 66.4 66.0 66.935–54 47.8 52.9 55.5 63.1 69.1 74.0 76.3 77.155–74 29.7 31.6 29.1 28.8 28.9 30.1 31.9 34.075+ 3.4 3.4 2.7 2.1 1.9 2.7 3.0 2.8

Sources: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

Effects of Demographic Trends on Labor Supply and Living Standards 3

than offset the effect of declining labor force participationof older men. Labor force participation of men ages 55 to74 declined from 65.8 percent in 1965 to 48.3 percent in1997; for men ages 75 and over, the rate declined from14.0 percent in 1965 to 7.7 percent in 1997.Virtually allof this decline in male labor force participation hadoccurred by 1985; since 1985, LFPRs of older men havebeen roughly constant.

Measuring Labor Supply AdequacyGrowth of labor supply will not in itself contribute tohigher living standards if the population that workersmust support is growing at the same rate.A standard wayof measuring the growth in living standards over time orof comparing living standards across countries is to com-pare relative levels of national income or output per capi-ta. With this measure, the proper determinant of laborsupply adequacy is the ratio of productive workers to thetotal population that these workers must support.

Measuring labor supply adequacy by the number ofworkers per capita may, however, understate the demo-graphic problem by ignoring the special burdens of car-ing for the dependent elderly and overstating the benefitfrom an increased ratio of workers to dependent children.Relative to working-age adults, per capita consumptionneeds are lower for children, because of lower require-ments for food, housing space, and medical care, andhigher for the elderly, because of increased health carecosts. Official government poverty measures implicitlyassume that children cost less than adults because the

poverty-level income per family member is lower forlarge families than for small families.1

This report presents estimates of the effects of demo-graphic changes on “labor supply adequacy” using twoalternative measures of consumption needs. The firstmeasure simply assumes that all people have the sameconsumption requirements, so that changes in labor sup-ply adequacy are measured by changes in labor supply percapita.The second measure uses an index that Cutler andhis colleagues (1990) developed in an earlier paper thatanalyzed the effects of demographic changes on livingstandards. The authors of that study divided total con-sumption into three categories—(1) private nonmedicalexpenses, (2) public education expenses, and (3) medicalcare—and derived estimates of the relative per capitaspending for each category for people in three agegroups: 0 to 19, 20 to 64, and 65 and over.

On the basis of these estimates, they constructed aneeds-weighted consumption measure that assigns rela-tive “needs” weights to people in the three age groups asfollows:

Age Group Consumption-Needs Weight

0–19 0.7220–64 1.0065 and over 1.27

Thus, the consumption needs of children ages 0 to 19are 28 percent less than the needs of working-age (20 to64) adults and about 43 percent less than the needs of

TABLE 1B.Calculation of Historical Needs-Based Populationa

1965 1970 1975 1980 1985 1990 1995 1997

Population Shares (%)0–19 40.3 37.7 35.3 32.0 29.7 29.0 29.0 28.920–64 50.5 52.6 54.5 57.0 58.6 58.8 58.5 58.665+ 9.2 9.7 10.3 11.1 11.7 12.3 12.5 12.5Needs per Capita (%)0–19 29.0 27.2 25.4 23.0 21.4 20.8 20.9 20.820–64 50.5 52.6 54.5 57.0 58.6 58.8 58.5 58.665+ 11.7 12.3 13.1 14.0 14.8 15.6 15.9 15.9Population Indexb 74.9 77.3 81.0 84.7 89.0 93.7 98.4 100.0Needs-Based

Population Indexb 71.7 74.7 78.9 83.6 88.6 93.6 98.3 100.0

a. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows: 0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.

b. These indices are relative to 1997.Sources: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).


TABLE 2.Historical Labor Force Adequacy Measures (Indexed relative to 1997)

1965 1970 1975 1980 1985 1990 1995 1997

Labor SupplyTotal 56.9 63.8 70.3 79.8 86.2 92.9 97.1 100.0Male 69.4 74.0 79.1 86.0 89.8 95.2 97.8 100.0Female 42.1 51.6 60.0 72.4 81.9 90.2 96.4 100.0Labor Supply per CapitaTotal 76.0 82.5 86.9 94.2 96.8 99.2 98.8 100.0Male 92.7 95.7 97.7 101.6 100.8 101.6 99.4 100.0Female 56.3 66.7 74.1 85.5 91.9 96.3 98.0 100.0Labor Supply per Needs-Based PopulationTotal 79.4 85.4 89.1 95.5 97.2 99.3 98.8 100.0Male 96.8 99.1 100.2 102.9 101.3 101.7 99.4 100.0Female 58.8 69.1 76.0 86.6 92.4 96.4 98.0 100.0

Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

elderly (ages 65 and over) adults.We recognize that con-struction of any measure of living standards that assignsdifferent consumption requirements to different groupsof people is highly subjective, but we believe some adjust-ment should be made for the effects of a changing agedistribution on consumption requirements.2

With the Cutler et al. needs measure, the needs-weighted population increased slightly more (39.5 per-cent) than the unweighted population (33.5 percent)between 1965 and 1997 (table 1b).The relatively largergrowth in the needs-weighted population occurredbecause the shares of both the 20–64 and over-65 agegroups increased, while the share of the 0–19 age groupdecreased. As a consequence, the relative consumptionneeds per capita increased from 0.912 in 1965 to 0.953 in1997. (Consumption needs per capita would equal 1.000if everyone were between the ages of 20 and 64.)

Changes in Number of Workers Relative toPopulation and Consumption Needs, 1965–1997Labor supply, measured by the number of workers in thepopulation, increased faster than both population andconsumption needs between 1965 and 1997 (table 2).Labor supply per capita increased by 31.6 percent, whilelabor supply per needs-based population increased by25.9 percent. The number of female workers increasedmuch more than the number of male workers, but bothfemale and male workers per capita increased.

The growth in labor supply per capita between 1965and 1997 reflects changes in both the age distribution ofthe population and LFPRs within age-gender groups.Toestimate the relative importance of these factors, weexpress the growth in labor force per capita as the sum of

three terms: (1) the sum across age-gender groups of thechange in population shares, weighted by each group’s laborforce participation; (2) the sum across age-gender groupsof the change in labor force participation rates, weighted byeach group’s population share; and (3) a cross-product termthat reflects changes in weighting factors as both popula-tion shares and LFPRs of each group change.3

Our analysis indicates that changes in populationshares among age-gender groups with different partici-pation rates and changes in participation rates withinage-gender groups contributed about equally to thegrowth in labor supply per capita (table 3a). But therelative contribution of the two factors differed signifi-cantly between males and females. Changes in the agedistribution of males contributed almost three times asmuch to the growth of labor supply per capita aschanges in the age distribution of females, reflecting therelatively higher LFPR of males compared with females.But changes in female LFPRs were responsible for morethan half (61.0 percent) of the growth in labor force percapita, while changes in male labor force participationcontributed negatively (–14.2 percent), reflecting thedrop in the LFPRs of older males. Overall, females were responsible for about 83 percent of the growth inthe labor force per capita, while males contributed only17 percent.

A similar analysis finds changes in the LFPRs withingroups responsible for a somewhat higher proportion ofthe change in the labor force per needs-based population(57.0 percent) than changes in age composition of thepopulation (36.5 percent). Females contributed over 90percent of the increase in the ratio of the labor force tothe needs-based population (table 3b).


Changes in Earnings-Weighted Labor SupplyRelative to Population and Consumption Needs, 1965–1997 The change in effective labor supply can differ from thechange in labor force participation if changes in the com-position of the workforce alter the amount of labor con-tribution per worker. Labor contribution per worker canincrease as a result of increases either in average hoursworked or in average productivity per person-hour.Labor productivity will increase as the workforcebecomes more educated and more experienced. Increasesin worker productivity and in hours worked should bereflected in higher earnings per worker. We use relativeearnings per worker by age cohort and gender in the baseyear (1997) as an index of the effective labor supply(hours times productivity) of workers in various age andgender groups.

In 1997, average earnings per worker differed greatlyamong age cohorts and by gender (table 4a). Earnings perworker among groups ranged from 14 percent of averageearnings for females ages 15 to 19 to 170 percent of aver-age earnings for males ages 50 to 54.4 Average earningsfor males peaked in the 50 to 54 age range, while forfemales earnings reached their highest point in the 45 to49 age range. While earnings per worker declined afterage 55, earnings per worker of 60- to 64-year-old malesremained higher than those for 35- to 39-year-old malesand earnings per worker for 60- to 64-year-old femalesremained higher than those for 25- to 29-year-oldfemales. Even at the age range of 65 to 69, earnings perworker were higher than average earnings for 25- to 29-year-old males and 20- to 24-year-old females. In gener-al, the aging of the labor force is associated with anincrease in average earnings per worker.

Earnings per capita decline much more sharply withage than earnings per worker do, reflecting the reducedlabor force participation of older workers (table 4b).Thisdecline is especially pronounced for women.Women ages65 to 69, for example, earned only about 18 percent percapita as much as the population over age 15 in 1997,although those women ages 65 to 69 who were in thelabor force earned about 60 percent of average earningsper worker.

Between 1965 and 1997, the earnings-weighted laborsupply per capita increased by about 26.4 percent (table5)—slightly less than the increase in the unweighted laborforce per capita of 31.6 percent.The earnings-weightedlabor supply per needs-based population increased byabout 20.9 percent.Thus, over the 1965–1997 period, thecomposition of the labor force shifted toward age-gendergroups with lower relative earnings,with relative earningsmeasured by 1997 weights. This shift toward lower-earnings groups occurred in spite of the maturing of the

workforce, which in general raised average earnings.Themain reason for the drop in estimated average earningsper worker was the rise in the percentage of females inthe labor force.5

Overall, changes in the age composition of the popu-lation contributed a larger percentage (67 percent) to thegrowth in the earnings-weighted labor supply than didchanges in LFPRs within age-gender groups (26 per-cent). The contribution from increased labor supply ofyoung and middle-aged women outweighed in impor-tance the negative contribution of the reduced labor sup-ply of older men (table 6a).Women accounted for mostof the increase (84 percent) in the earnings-weightedlabor supply per needs-based population (table 6b).

Summary: Historical DataIn this section,we have examined the historical growth oflabor force adequacy.We measured labor supply both bylabor force participation and by a measure that weightedparticipation by relative earnings in each age-gendergroup.We measured consumption needs both by the totalpopulation and by a needs-based index that assigns ahigher need weight to people age 65 and over and alower weight to people age 19 and younger. All themeasures we used showed that labor supply adequacy isincreasing, although the relative contribution of differentfactors to this increase varied with the measurement used.For all measures, however, changes in the age composi-tion of the population and changes in LFPRs within age-gender groups both contributed positively to themeasured increase in labor supply adequacy.The gain inlabor supply from higher LFPRs of younger and middle-aged women was substantially greater than the loss inlabor supply from lower LFPRs of older men.

LABOR SUPPLY PROJECTIONS

Population projections from the Social SecurityAdministration (SSA) show a decline in the working-age(20–64) population per capita after 2010 (table 7a).6 Theworking-age population is projected to increase by 22.2percent between 1997 and 2040, but the total populationand the 20-plus population will increase by a largerpercentage over the same period. The ratio of 20- to 64-year-olds to total population increases in the earlyyears of the twenty-first century and remains above its1997 level through 2020. By 2040, however, it willdecline to 95.2 percent of its 1997 level.This decline inworking-age people per capita reflects the offsettingeffects of the increase in the share of elderly in the pop-ulation and a decline in the share of people under 20.When the under-20 group is removed from the calcula-


TABLE 3B.Factor Analysis: Contribution to Total Change in Labor Force per Needs-Based Population (1965–1997)

Change in Change in Needs Share (%) Labor Force/Needs (%) Cross-Product (%) Total (%)

Male 27.6 –17.3 –1.9 8.515–34 9.9 –0.3 –0.8 8.835–54 18.3 –5.9 –0.9 11.555–74 –1.3 –10.3 0.1 –11.575+ 0.7 –0.8 –0.3 –0.4

Female 8.9 74.3 8.3 91.515–34 1.6 35.1 3.3 40.035–54 8.1 34.6 5.4 48.255–74 –1.2 4.7 –0.4 3.175+ 0.4 –0.1 –0.0 0.3

Ages 15–54 36.6 63.7 8.1 108.5Ages 55+ –1.5 –6.4 –0.6 –8.5Total 36.5 57.0 6.5 100.0


TABLE 3A.Factor Analysis: Contribution to Total Change in Labor Force per Capita (1965–1997)

Change in Change inPopulation Shares (%) LFPRs (%) Cross-Product (%) Total (%)

Male 33.1 –14.2 –2.2 16.715–34 12.1 –0.2 –0.7 11.235–54 19.8 –4.9 –1.0 14.055–74 0.5 –8.5 –0.3 –8.275+ 0.7 –0.7 –0.3 –0.3

Female 12.5 61.0 9.9 83.315–34 3.2 28.8 4.1 36.235–54 9.0 28.4 5.9 43.455–74 –0.1 3.8 –0.2 3.575+ 0.3 –0.1 –0.0 0.3

Ages 15–54 43.1 52.3 9.3 104.7Ages 55+ 1.2 –5.3 –0.7 –4.7Total 45.6 46.8 7.6 100.0

Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).


TABLE 4A.Mean Annual Earnings per Worker (1997)

Total Male FemaleAges Earnings ($) Relative (%) Earnings ($) Relative (%) Earnings ($) Relative (%)

15+ 28,033 100.0 34,379 122.6 20,482 73.115–19 4,250 15.2 4,657 16.6 3,821 13.620–24 12,305 43.9 13,520 48.2 10,918 38.925–29 22,598 80.6 25,318 90.3 19,282 68.830–34 27,524 98.2 32,555 116.1 21,172 75.535–39 32,312 115.3 39,803 142.0 23,251 82.940–44 35,082 125.1 43,057 153.6 25,838 92.245–49 36,676 130.8 45,967 164.0 26,018 92.850–54 36,937 131.8 47,733 170.3 24,490 87.455–59 34,514 123.1 44,506 158.8 22,438 80.060–64 31,870 113.7 41,128 146.7 20,070 71.665–69 24,259 86.5 30,026 107.1 16,882 60.270–74 19,703 70.3 24,064 85.8 12,456 44.475–79 21,486 76.6 27,285 97.3 11,051 39.480–84 20,488 73.1 24,601 87.8 14,035 50.185+ 26,052 92.9 42,643 152.1 13,300 47.4

Note: The Relative (%) column denotes the ratio of the mean earnings of each group to the mean earnings of all persons age 15 and older.Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).

TABLE 4B.Mean Annual Earnings per Capita (1997)

Total Male FemaleAges Earnings ($) Relative (%) Earnings ($) Relative (%) Earnings ($) Relative (%)

15+ 19,209 100.0 26,173 136.3 12,709 66.215–19 2,067 10.8 2,261 11.8 1,865 9.720–24 9,987 52.0 11,494 59.8 8,477 44.125–29 19,581 101.9 23,760 123.7 15,416 80.330–34 23,358 121.6 30,455 158.5 16,358 85.235–39 27,585 143.6 36,957 192.4 18,303 95.340–44 29,906 155.7 39,543 205.9 20,507 106.845–49 31,144 162.1 42,105 219.2 20,668 107.650–54 30,260 157.5 42,587 221.7 18,523 96.455–59 24,882 129.5 36,166 188.3 14,402 75.060–64 16,244 84.6 24,409 127.1 8,891 46.365–69 6,098 31.7 9,173 47.8 3,533 18.470–74 2,961 15.4 4,816 25.1 1,490 7.875–79 1,622 8.4 3,251 16.9 530 2.880–84 846 4.4 1,678 8.7 329 1.785+ 707 3.7 1,605 8.4 238 1.2

Note: The Relative (%) column denotes the ratio of the mean earnings of each group to the mean earnings of all persons age 15 and older.Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).


tion, the ratio of the 20–64 population to the 20-and-overpopulation is lower than the 1997 ratio by 2010, declin-ing to 95.5 percent of its 1997 level by 2020 and 88.6percent of its 1997 level by 2040.

The working-age population per capita increases by0.23 percent per year between 1997 and 2010, but thendrops by 0.24 percent per year between 2010 and 2020and 0.53 percent per year between 2020 and 2030 (table7b). After 2030, it levels off, declining by only 0.02percent per year between 2030 and 2040.The ratio of 20-to 64-year-olds to the over-20 population declines inevery period between 2010 and 2040, but most of thedrop occurs between 2010 and 2030, as successive babyboomer cohorts reach age 65.

Changes in the number of people between 20 and 64provide an initial, rough estimate of how the labor supplywill change over time. Changes in the 20–64 populationaccurately reflect changes in total effective labor supply if(1) LFPRs are the same for all population groupsbetween ages 20 and 64 and are zero for people under 20and over 65, (2) hours worked and productivity are thesame for all groups of workers, and (3) future cohortshave the same productivity and LFPRs as workers in thebase year (1997). Below, we modify these assumptions toderive alternative projections of changes in effective laborsupply between 1997 and 2040.The first group of pro-jections (base labor force projections) assumes that LFPRsfor men and women in each age group remain constantover time.7 The second group of projections (labor forceprojections, adjusted for higher LFPRs of postwar femalecohorts) adjusts the LFPRs of older women to make itconsistent with the increased ratio of female to male

LFPRs for women born after 1945.The third set of pro-jections holds constant a quality-adjusted measure of thechange of the labor force (the earnings-indexed laborforce).This measure is derived from a weighted average ofLFPRs, with the weights based on the relative averageearnings per worker of men and women in each agegroup in 1997. Higher relative earnings in an age-sexcohort reflect both relatively higher hours per worker andrelatively higher marginal productivity per hour worked,as measured by market earnings.The fourth and final setof projections (the adjusted earnings-indexed labor force)adjusts relative earnings to take account of the effect onearnings per capita of the increased educational attain-ment of younger cohorts in today’s workforce. Futureworkers are assigned the same educational attainment lev-els as younger cohorts today and are projected to haveearnings consistent with their age and educationthroughout their careers.

Projections Assuming Constant Labor Force Participation RatesThe change in the age distribution of the population willbe associated with a change in the ratio of the labor forceto the population, assuming that LFPRs by age and gen-der remain constant. (LFPRs by age and gender are dis-played in table 8.) As the population ages, total labor forceparticipation will at first continue to grow rapidly becauseof the continuing high LFPRs of the 1946–1964 birthcohort.As the share of the population over 55 increases,however, the growth in labor force participation willeventually slow. Overall, by 2040, the labor force partici-pation is projected to be about 21.8 percent higher than

TABLE 5.Historical Labor Force Adequacy Measures, Weighting Workers by 1997 Relative Earnings (Indexed relative to 1997)

1965 1970 1975 1980 1985 1990 1995 1997

Labor SupplyTotal 59.2 63.5 67.1 74.7 81.8 90.4 96.6 100.0Male 68.7 71.3 73.5 79.0 84.2 91.7 96.9 100.0Female 40.3 47.8 54.3 66.3 77.1 87.8 96.1 100.0Labor Supply per CapitaTotal 79.1 82.0 82.9 88.2 91.9 96.5 98.3 100.0Male 91.8 92.2 90.8 93.2 94.6 97.9 98.5 100.0Female 53.9 61.8 67.1 78.2 86.6 93.7 97.7 100.0Labor Supply per Needs-Based PopulationTotal 82.7 84.9 85.0 89.4 92.4 96.6 98.3 100.0Male 95.9 95.4 93.2 94.4 95.0 98.0 98.6 100.0Female 56.3 64.0 68.8 79.3 87.1 93.8 97.7 100.0



TABLE 6A.Factor Analysis: Contribution to Total Change in Labor Force per Capita (1965–1997) (Weighting workers by 1997 relative earnings)

Change in Change in Population Shares (%) LFPRs (%) Cross-Product (%) Total (%)

Male 53.4 –24.3 –2.9 26.215–34 8.3 –1.4 –0.7 16.235–54 34.4 –8.9 –1.7 23.855–74 –0.0 –13.2 –0.2 –13.575+ 0.8 –0.8 –0.3 –0.3

Female 13.3 50.4 10.1 73.815–34 4.2 18.0 4.2 26.535–54 9.1 28.9 6.0 44.055–74 –0.3 3.5 –0.2 3.075+ 0.2 –0.0 –0.0 0.1

Ages 15–54 64.0 37.6 9.0 110.6Ages 55+ 0.4 –10.3 –0.7 –10.6Total 66.7 26.1 7.2 100.0

Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

TABLE 6B.Factor Analysis: Contribution to Total Change in Labor Force per Needs-Based Population (1965–1997)(Weighting workers by 1997 relative earnings)

Change in Change in Needs Share (%) Labor Force/Needs (%) Cross-Product (%) Total (%)

Male 48.6 –30.6 –2.2 15.815–34 18.4 –1.8 –0.7 15.935–54 32.5 –11.2 –1.5 19.855–74 –3.2 –16.7 0.5 –19.475+ 0.9 –0.9 –0.4 –0.4

Female 11.3 63.5 9.4 84.215–34 3.9 22.7 4.1 30.735–54 8.4 36.4 5.6 50.555–74 –1.2 4.4 –0.4 2.875+ 0.2 –0.0 –0.0 0.2

Ages 15–54 60.8 47.3 8.8 116.9Ages 55+ –3.6 –13.0 –0.3 –16.9Total 59.9 32.9 7.2 100.0



in 1997 (table 9a). The projected increase in the laborforce, assuming constant participation rates by age andgender, is slightly less than the projected increase in thepopulation ages 20 to 64 (22.2 percent).

The labor force will increase by 0.92 percent per yearbetween 1997 and 2010, but then by only 0.38 percentper year between 2010 and 2020, and 0.15 percent peryear between 2020 and 2030 (table 9b). The projectedgrowth in the labor force is slightly less than the growthin the 20 to 64 population between 1997 and 2020, butslightly more than the growth in the 20–64 populationbetween 2020 and 2040.

Adjusting for Higher LFPRs of Postwar Cohorts of WomenIn 1997, the ratio of female to male LFPRs declinedsharply at ages greater than 55 (table 8). This ratio was0.847 in the 50–54 age group, 0.723 in the 60–64 agegroup, and only 0.475 in the 70–74 age group. It is rea-

sonable to assume that this decline in the ratio of femaleto male labor force participation at older ages in 1997reflects the different labor force participation behavior ofwomen born before 1945, who were less likely to workoutside the home than postwar birth cohorts were. If thisdecline in work participation for older women in 1997reflects the particular economic and social circumstancesof prewar cohorts, one can expect that LFPRs of olderwomen will increase to reflect the changed labor forcebehavior of postwar birth cohorts. To implement thischange, we assume that the labor force participation ofwomen ages 50 and over in future years will decline bythe same percentage rate with age as the LFPR of men.8

Making this adjustment for female labor force partici-pation raises the growth in total labor force participationbetween 1997 and 2040 from 21.8 percent to 24.2percent—a 2.0 percent increase in the projected 2040labor force (table 10a).The projected increase in femalelabor force participation goes up from 20.0 percent to

TABLE 7B.Population Projections (Annual growth rates)

Indexed Relative to 1997 Annual Growth Rate (%) over Period (1997 = 100)

1997–2010 2010–2020 2020–2030 2030–2040 2020 2040

Working-AgePopulation 1.03 0.43 –0.04 0.29 119.1 122.2

Total Population 0.79 0.66 0.49 0.32 118.4 128.320+ Population 1.03 0.89 0.59 0.41 124.8 138.0Ratio of 20–64 to

Total Population 0.23 –0.24 –0.53 –0.02 100.7 95.2Ratio of 20–64 to

20+ Population –0.00 –0.46 –0.63 –0.12 95.5 88.6

Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

TABLE 7A.Population Projections (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040

Working-AgePopulation 100.0 103.2 109.1 114.2 117.8 119.1 118.9 118.7 120.1 122.2

Total Population 100.0 102.7 106.8 110.8 114.7 118.4 121.6 124.3 126.6 128.320+ Population 100.0 103.0 108.5 114.2 120.0 124.8 128.9 132.4 135.5 138.0Ratio of 20–64 to

Total Population 100.0 100.5 102.1 103.1 102.7 100.7 97.8 95.5 94.9 95.2Ratio of 20–64 to

20+ Population 100.0 100.2 100.5 99.9 98.1 95.5 92.3 89.6 88.6 88.6

Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).


and 0.18 percent per year between 2020 and 2030, beforerecovering slightly to a growth rate of 0.25 percent peryear between 2030 and 2040.

Cutler et al. (1990, table 1b, p. 12) made similar projec-tions in the growth of the earnings-weighted labor force,but they used 1987 weights and did not include theadjustment we make for higher participation rates ofolder cohorts of women. They project annual growthrates of 0.48 percent between 2000 and 2010, –0.03 per-cent between 2010 and 2020, –0.10 percent between2020 and 2030, and 0.07 percent between 2030 and2040.The higher growth rates in our projections reflectchanges in demographic projections since 1990, differ-ences between relative earnings weights by age and gen-der in 1987 and 1997, and the adjustment we make forhigher LFPRs of older women.

Adjusting for Changes in Educational AttainmentAn underlying determinant of earnings is the level ofeducational attainment for a particular worker or catego-ry of workers. Education levels have been improving overtime, as higher proportions of younger generations attendcollege and other postsecondary institutions. In particu-lar, the educational attainment of women has increasedsubstantially in the past few decades. This increase isreflected in the fact that 29.3 percent of women ages 25to 29 had a college degree or higher in 1997, comparedwith only 14.6 percent of women ages 60 to 64 (table12). In contrast, the percentage of males ages 25 to 29with a college degree or higher in 1997 was only slight-ly higher than the percentage of males ages 60 to 64 witha college degree (26.3 percent, compared with 24.4 per-cent) and is lower than the percentage of males ages 45 to49 with a college degree or higher (32.7 percent). For theentire population, the fraction with a college degree orhigher for 25- to 29-year-olds is about the same as for 50-to 54-year-olds, but much greater than the percentage forall cohorts ages 55 and older.

Earnings per capita usually increase positively withhigher levels of education, reflecting both the positiveeffect of education on average earnings and the higherLFPRs of more educated workers (table 13a). For peoplein their peak earning years (45–54), those with a highschool diploma or some college earn on average abouttwice as much per capita as those who did not finish highschool, and those with bachelor’s degrees or other grad-uate and professional degrees earn roughly twice as muchas those with a high school diploma but no collegedegree. The percentage earnings differential by educa-tional attainment is higher for older than for youngerworkers, reflecting a steeper age-earnings curve foreducated workers and much higher LFPRs for moreeducated workers in the oldest cohorts. (Table 13b shows

TABLE 8.1997 Labor Force Participation Rates

Ages Total (%) Male (%) Female (%)

15+ 65.5 72.5 58.915–19 41.7 41.8 41.520–24 76.0 79.5 72.525–29 83.8 90.5 77.130–34 82.7 91.0 74.635–39 84.0 91.0 77.040–44 84.3 90.3 78.445–49 84.0 90.3 78.050–54 80.9 87.8 74.455–59 69.5 77.9 61.660–64 47.5 55.6 40.265–69 22.7 27.5 18.670–74 13.0 18.3 8.775–79 6.8 10.7 4.280–84 3.4 5.7 2.185+ 2.0 3.0 1.5

Note: Labor force participation rates include both employed andunemployed persons.Source: Authors’ calculations based on data from the U.S. Bureau of theCensus (1997).

25.1 percent; the projected increase in male labor forceparticipation remains at 23.4 percent. The rise in theprojected growth of the female labor force by this change in methodology is greatest in the years2010–2020 (table 10b).

Adjusting for Relative Earnings in Various Age and Sex GroupsAs discussed in the previous section, we can measure theeffective labor supply by weighting age-gender participa-tion rates by relative earnings in 1997. As the workforcematures, the earnings-weighted labor supply will increasefaster than the total labor force, because older workers (upto a point) have higher earnings than younger workers.This rise in average earnings per worker as the labor forceages mitigates the long-term trend toward reduced laborsupply per capita, but only slightly (table 11a). Comparedwith 1997, the earnings-weighted indexed labor force isprojected to have risen by 25.0 percent by 2040, com-pared with projected increases of 22.2 percent in the20–64 population and 24.2 percent in the unindexedlabor force, adjusted for higher LFPRs of future cohortsof older women.The pattern of growth of the earnings-indexed labor force is similar to the growth pattern of theunindexed labor force (table 11b). The growth ratedeclines from 1.04 percent per year between 1997 and2010 to 0.40 percent per year between 2010 and 2020


TABLE 9B.Base Labor Force Projections (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040

Labor ForceTotal 0.92 0.38 0.15 0.20 116.9 121.8Male 0.94 0.44 0.18 0.22 118.0 123.4Female 0.89 0.31 0.12 0.18 115.6 120.0Working-Age PopulationTotal 1.03 0.43 –0.04 0.13 119.1 122.2Male 1.04 0.45 –0.01 0.15 119.7 123.3Female 1.01 0.40 –0.06 0.11 118.6 121.2

Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1997).

TABLE 10A.Labor Force Projections Adjusted for Higher LFPRs of Postwar Female Cohorts* (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040

Labor ForceTotal 100.0 103.2 108.3 113.1 116.6 118.4 119.6 120.9 122.5 124.2Male 100.0 103.2 108.3 113.0 116.2 118.0 119.0 120.1 121.7 123.4Female 100.0 103.2 108.3 113.3 117.1 118.9 120.4 121.8 123.5 125.1Working-Age PopulationTotal 100.0 103.2 109.1 114.2 117.8 119.1 118.9 118.7 120.1 122.2Male 100.0 103.2 109.1 114.4 118.1 119.7 119.6 119.5 121.1 123.3Female 100.0 103.2 109.0 114.0 117.4 118.6 118.3 117.9 119.2 121.2

*This table calculates the labor supply that results from adjusting the base labor force for the higher labor force participation rates (LFPRs) of younger womenin their later years. The adjustment assumes that women will participate in the labor force at a fixed rate relative to men.


TABLE 9A.Base Labor Force Projections (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040




TABLE 10B.Labor Force Projections Adjusted for Higher LFPRs of Postwar Female Cohorts* (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040


*This table calculates the labor supply that results from adjusting the base labor force for the higher labor force participation rates (LFPRs) of younger womenin their later years. The adjustment assumes that women will participate in the labor force at a fixed rate relative to men.


TABLE 11A.Indexed Labor Force (Earnings-Weighted) Adjusted for Higher LFPRs of Postwar Female Cohorts (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040


Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1997).

TABLE 11B.Indexed Labor Force (Earnings-Weighted) Adjusted for Higher LFPRs of Postwar Female Cohorts (Annual growth rates)

Indexed Relative to 1997Annual Growth Rate (%) over Period (1997 = 100)

1997–2010 2010–2020 2020–2030 2030–2040 2020 2040




TABLE 12.Educational Attainment of Total Population (Figures in thousands)

All Education High School Graduate/Levels 0–11 Years Some College College Graduate+

No. % No. % No. % No. %

Total25–29 19,260 100.0 2,433 12.6 11,471 59.6 5,356 27.8 30–34 20,996 100.0 2,696 12.8 12,764 60.8 5,536 26.4 35–39 22,755 100.0 2,851 12.5 14,229 62.5 5,675 24.940–44 21,205 100.0 2,397 11.3 13,220 62.3 5,588 26.445–49 18,354 100.0 2,243 12.2 10,732 58.5 5,379 29.3 50–54 14,659 100.0 2,109 14.4 8,556 58.4 3,994 27.2 55–59 11,579 100.0 2,332 20.1 6,692 57.8 2,555 22.160–64 9,896 100.0 2,478 25.0 5,514 55.7 1,904 19.265–69 9,501 100.0 2,763 29.1 5,092 53.6 1,646 17.3 70–74 8,514 100.0 2,730 32.1 4,484 52.7 1,301 15.3 75–79 6,743 100.0 2,375 35.2 3,497 51.9 871 12.980–84 4,211 100.0 1,711 40.6 1,958 46.5 542 12.985+ 2,909 100.0 1,405 48.3 1,152 39.6 351 12.1Male25–29 9,613 100.0 1,367 14.2 5,717 59.5 2,529 26.330–34 10,426 100.0 1,464 14.0 6,243 59.9 2,720 26.135–39 11,323 100.0 1,545 13.6 6,911 61.0 2,866 25.340–44 10,470 100.0 1,307 12.5 6,336 60.5 2,827 27.045–49 8,969 100.0 1,105 12.3 4,935 55.0 2,929 32.750–54 7,150 100.0 1,041 14.6 3,860 54.0 2,249 31.455–59 5,575 100.0 1,157 20.7 2,974 53.3 1,445 25.9 60–64 4,689 100.0 1,121 23.9 2,426 51.7 1,142 24.465–69 4,321 100.0 1,218 28.2 2,104 48.7 999 23.170–74 3,764 100.0 1,229 32.6 1,715 45.6 820 21.875–79 2,705 100.0 958 35.4 1,284 47.5 464 17.180–84 1,615 100.0 685 42.4 664 41.1 266 16.585+ 998 100.0 492 49.3 388 38.9 118 11.8Female25–29 9,647 100.0 1,067 11.1 5,753 59.6 2,827 29.330–34 10,570 100.0 1,232 11.7 6,521 61.7 2,817 26.635–39 11,432 100.0 1,306 11.4 7,318 64.0 2,809 24.6 40–44 10,735 100.0 1,090 10.2 6,884 64.1 2,761 25.745–49 9,385 100.0 1,138 12.1 5,796 61.8 2,450 26.150–54 7,509 100.0 1,068 14.2 4,696 62.5 1,745 23.255–59 6,003 100.0 1,175 19.6 3,718 61.9 1,110 18.560–64 5,207 100.0 1,358 26.1 3,088 59.3 761 14.6 65–69 5,180 100.0 1,544 29.8 2,988 57.7 647 12.5 70–74 4,750 100.0 1,501 31.6 2,768 58.3 481 10.175–79 4,038 100.0 1,417 35.1 2,213 54.8 408 10.180–84 2,595 100.0 1,026 39.5 1,293 49.8 276 10.685+ 1,911 100.0 913 47.8 764 40.0 233 12.2

Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).


relative earnings per worker in various age and gendergroups.) Thus, generally speaking, increases in the levels ofeducation for successive cohorts will increase the effectivelabor supply over time, other things being equal.

We constructed a cohort education-earnings index bycomparing the respective education levels of particularage and sex groups with the relative earnings of oldercohorts (tables 14a and 14b).This index shows that high-er educational attainment will, on average, raise the futureearnings of today’s younger cohorts of women relative tothe earnings of older female cohorts today. For example,in 2020, higher educational attainment will raise theearnings of today’s 25- to 29-year-old women by 3 per-cent per capita and by 2 percent per worker comparedwith what 45- to 49-year-old women earn today; raisethe earnings of today’s 35- to 39-year-old women by 10percent per capita and by 7 percent per worker comparedwith what 55- to 59-year-old women earn today; andraise the earnings of today’s 45- to 49-year-old women by37 percent per capita and 24 percent per worker com-pared with what 65- to 69-year-old women earn today.On average, higher educational attainment will also raisethe average future earnings of males compared with oldermale cohorts today, but the gains will be smaller than forfemales and will be negative for some cohorts in someyears, reflecting the slight decline in the educationalattainment of younger cohorts of males compared withthe early postwar cohorts. For example, lower education-al attainment will reduce the earnings of today’s 25- to29-year-old males by about 5 percent per capita and perworker in 2020 compared with earnings of 45- to 49-year-old males today. By 2040, however, their highereducational attainment compared with 65- to 69-year-olds will raise their earnings by 9 percent per capita and6 percent per worker compared with current earnings oftoday’s 65- to 69-year-old males.

Using this education-earnings index, we computedan education-adjusted indexed labor force by multiply-ing the indexed labor force estimates in the previoussection by the gains in relative earnings per capita infuture cohorts. (For women over age 50, we use relativeearnings per worker to create the education-adjustedindex because we already adjusted the labor force par-ticipation of older cohorts of women to make it consis-tent with LFPRs of older males.) The higher educationof cohorts born after 1943 (i.e., ages 50 to 54 andyounger in 1997) will permanently increase the qualityof the workforce as these more educated workersreplace the older, less educated cohorts born beforeWorld War II. But, as with the gains from a more expe-rienced workforce, the projected gains from improvedaverage education levels are modest. The education-adjusted indexed labor force increases by 26.0 percent

between 1997 and 2040 (table 15a), only slightly morethan the increase in the same period of 25.0 percent inthe earnings-weighted labor force (table 11a).Adjustingfor improved educational attainment raises the laborsupply growth rate slightly more for women than formen.The education-adjusted indexed labor force has aslightly different growth pattern over time (table 15b)than the earnings-adjusted labor force does (table 11b).It grows faster than the indexed labor force between2010 and 2030, but then grows less than the indexedlabor force between 2030 and 2040, reflecting the morerecent decline in educational attainment amongyounger males and the assumption that future cohorts ofyounger workers will have the same educational attain-ment as today’s younger workers.

Summary of Labor Supply ProjectionsIn this section of the report, we have derived alternativeprojections of how demographic changes will affect laborsupply. The adjustments we have made up to this pointtake into account increased labor force participation ofpostwar birth cohorts of women, differences in relativeearnings by age and sex, and projected increases in theaverage educational attainment of the population, basedon education levels of different birth cohorts of men andwomen in 1997.

The cumulative adjustments raise projected laborsupply in 2040 by about 3.4 percent ([126.0 – 121.8] ÷121.8), compared with a projection that assumes constantLFPRs by age and sex (table 16a). The growth in theadjusted earnings-indexed labor force exceeds the growthin the base labor force by 0.20 percentage points per yearbetween 1997 and 2010, 0.04 percentage points per yearbetween 2010 and 2020, 0.08 percentage points per yearbetween 2020 and 2030, and 0.02 percentage points peryear between 2030 and 2040 (table 16b).

PROJECTIONS OF CONSUMPTIONNEEDS AND LABOR SUPPLYADEQUACY

The previous section of the report provided estimates ofhow demographic changes may affect alternative mea-sures of the growth of labor supply. A fundamental con-cern is that, in the future, labor supply may be growingless rapidly than population.The resulting increase in theratio of dependents to workers, all other things equal, willreduce average living standards regardless of whetherworkers pay for supporting the nonworking populationdirectly through intrafamily transfers or indirectlythrough tax-financed programs of federal, state, and localgovernments.9


TABLE 13A.Relative Mean Annual Earnings per Capita (By educational attainment)


Earnings ($) % Earnings ($) % Earnings ($) % Earnings ($) %

Total25–29 19,581 100.0 9,770 49.9 17,783 90.8 27,888 142.430–34 23,358 100.0 10,560 45.2 20,754 88.9 35,593 152.435–39 27,585 100.0 12,394 44.9 23,323 84.5 45,901 166.440–44 29,906 100.0 12,330 41.2 24,553 82.1 50,110 167.645–49 31,144 100.0 12,473 40.0 25,506 81.9 50,178 161.150–54 30,260 100.0 12,819 42.4 24,506 81.0 51,797 171.255–59 24,882 100.0 10,996 44.2 22,050 88.6 44,976 180.860–64 16,244 100.0 6,867 42.3 14,015 86.3 34,907 214.965–69 6,098 100.0 2,637 43.2 4,345 71.3 17,333 284.270–74 2,961 100.0 1,120 37.8 2,551 86.2 8,235 278.175–79 1,622 100.0 888 54.7 1,624 100.1 3,613 222.780–84 846 100.0 428 50.6 844 99.8 2,173 256.985+ 707 100.0 400 56.6 729 103.1 1,864 263.6Male25–29 23,760 100.0 13,550 57.0 22,658 95.4 31,768 133.730–34 30,455 100.0 14,876 48.8 27,602 90.6 45,389 149.035–39 36,957 100.0 16,943 45.8 31,115 84.2 61,830 167.340–44 39,543 100.0 16,680 42.2 32,172 81.4 66,635 168.545–49 42,105 100.0 17,987 42.7 34,480 81.9 64,055 152.150–54 42,587 100.0 19,148 45.0 34,346 80.6 67,588 158.755–59 36,166 100.0 16,391 45.3 32,963 91.1 58,588 162.060–64 24,409 100.0 10,104 41.4 20,970 85.9 45,747 187.465–69 9,173 100.0 3,974 43.3 6,322 68.9 21,517 234.670–74 4,816 100.0 1,823 37.9 4,086 84.8 10,828 224.875–79 3,251 100.0 1,780 54.8 3,526 108.5 5,528 170.080–84 1,678 100.0 876 52.2 1,689 100.7 3,712 221.285+ 1,605 100.0 1,062 66.2 1,349 84.0 4,704 293.1Female25–29 15,416 100.0 4,928 32.0 12,939 83.9 24,417 158.430–34 16,358 100.0 5,433 33.2 14,199 86.8 26,136 159.835–39 18,303 100.0 7,010 38.3 15,964 87.2 29,645 162.040–44 20,507 100.0 7,112 34.7 17,540 85.5 33,191 161.945–49 20,668 100.0 7,118 34.4 17,865 86.4 33,592 162.550–54 18,523 100.0 6,646 35.9 16,419 88.6 31,450 169.855–59 14,402 100.0 5,687 39.5 13,322 92.5 27,251 189.260–64 8,890 100.0 4,196 47.2 8,549 96.2 18,645 209.765–69 3,533 100.0 1,582 44.8 2,953 83.6 10,873 307.870–74 1,490 100.0 546 36.6 1,599 107.3 3,811 255.875–79 530 100.0 285 53.8 521 98.3 1,435 270.880–84 329 100.0 129 39.2 411 124.9 686 208.585+ 238 100.0 43 18.1 414 173.9 425 178.6

Note: The percent (%) column denotes the mean per capita earnings of each educational subgroup relative to the average for that age group.Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).


TABLE 13B.Relative Mean Annual Earnings per Worker* (By educational attainment)


Earnings ($) % Earnings ($) % Earnings ($) % Earnings ($) %

Total25–29 22,537 100.0 13,447 59.7 20,375 90.4 30,069 133.430–34 27,391 100.0 14,626 53.4 24,111 88.0 39,407 143.935–39 32,175 100.0 16,882 52.5 26,982 83.9 50,706 157.640–44 34,946 100.0 17,882 51.2 28,422 81.3 55,042 157.545–49 36,493 100.0 18,708 51.3 29,931 82.0 53,587 146.850–54 36,788 100.0 20,182 54.9 29,616 80.5 56,467 153.555–59 34,353 100.0 20,343 59.2 30,019 87.4 52,293 152.260–64 31,743 100.0 18,096 57.0 26,691 84.1 52,623 165.865–69 24,136 100.0 13,707 56.8 16,990 70.4 46,005 190.670–74 19,699 100.0 10,836 55.0 14,964 76.0 38,644 196.275–79 21,333 100.0 16,265 76.2 20,159 94.5 32,026 150.180–84 20,705 100.0 20,440 98.7 15,666 75.7 42,534 205.485+ 28,196 100.0 18,500 65.6 30,766 109.1 33,938 120.4Male25–29 25,318 100.0 15,236 60.2 23,999 94.8 33,474 132.230–34 32,555 100.0 17,221 52.9 29,432 90.4 46,742 143.635–39 39,803 100.0 19,946 50.1 33,462 84.1 63,752 160.240–44 43,057 100.0 20,743 48.2 34,931 81.1 68,882 160.045–49 45,967 100.0 22,716 49.4 37,910 82.5 65,755 143.050–54 47,733 100.0 25,285 53.0 38,455 80.6 70,532 147.855–59 44,507 100.0 24,660 55.4 40,301 90.5 64,461 144.860–64 41,128 100.0 21,556 52.4 34,814 84.6 63,916 155.465–69 30,026 100.0 16,271 54.2 21,273 70.8 50,401 167.970–74 24,064 100.0 12,868 53.5 18,913 78.6 39,523 164.275–79 27,285 100.0 20,624 75.6 25,779 94.5 41,877 153.580–84 24,601 100.0 32,140 130.6 16,016 65.1 50,477 205.285+ 42,643 100.0 22,701 53.2 48,149 112.9 67,516 158.3Female25–29 19,282 100.0 9,146 47.4 16,146 83.7 26,903 139.530–34 21,172 100.0 9,607 45.4 17,987 85.0 31,203 147.435–39 23,251 100.0 11,642 50.1 19,881 85.5 35,347 152.040–44 25,838 100.0 12,812 49.6 21,659 83.8 39,005 151.045–49 26,018 100.0 12,929 49.7 22,218 85.4 37,703 144.950–54 24,490 100.0 12,745 52.0 21,248 86.8 36,387 148.655–59 22,438 100.0 13,449 59.9 19,855 88.5 34,587 154.160–64 20,070 100.0 13,811 68.8 18,193 90.6 31,574 157.365–69 16,882 100.0 10,593 62.7 13,027 77.2 36,308 215.170–74 12,456 100.0 7,463 59.9 10,476 84.1 34,485 276.975–79 11,051 100.0 7,166 64.8 11,179 101.2 15,443 139.780–84 14,035 100.0 7,548 53.8 14,992 106.8 25,169 179.385+ 13,300 100.0 7,314 55.0 18,742 140.9 8,164 61.4

*Differences in mean earnings figures from table 4a caused by rounding.Note: The percent (%) column denotes the mean earnings per worker of each educational subgroup relative to the average for that age group.Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).


TABLE 14A. Cohort Education-Earnings Index* (Using earnings per capita)

+5 Years (2005) +10 Years (2010) +15 Years (2015) +20 Years (2020) +25 Years (2025) +30 Years (2030) +35 Years (2035) +40 Years (2040)

Age in 2000 Total Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total Male

25–29 1.01 1.00 1.02 1.02 1.01 1.04 1.01 0.99 1.02 0.99 0.95 1.03 1.01 0.96 1.07 1.09 1.03 1.15 1.16 1.06

30–34 1.01 1.00 1.01 0.99 0.99 1.00 0.97 0.95 1.01 1.00 0.96 1.04 1.07 1.03 1.12 1.15 1.06 1.21 1.24 1.09

35–39 0.98 0.98 0.98 0.96 0.94 0.99 0.99 0.96 1.03 1.06 1.03 1.10 1.13 1.06 1.18 1.21 1.07 1.34 1.28 1.14

40–44 0.98 0.96 1.01 1.00 0.97 1.04 1.08 1.05 1.12 1.15 1.08 1.20 1.24 1.10 1.37 1.31 1.17 1.38 1.27 1.18

45–49 1.03 1.02 1.03 1.10 1.09 1.11 1.19 1.14 1.20 1.30 1.20 1.37 1.37 1.25 1.38 1.31 1.22 1.38 1.40 1.34

50–54 1.07 1.07 1.07 1.15 1.11 1.16 1.25 1.17 1.30 1.32 1.22 1.32 1.27 1.20 1.32 1.35 1.32 1.32 1.40 1.47

55–59 1.06 1.03 1.08 1.13 1.07 1.17 1.19 1.11 1.21 1.18 1.13 1.21 1.25 1.22 1.24 1.29 1.35 1.44 — —

60–64 1.05 1.03 1.06 1.11 1.08 1.11 1.12 1.11 1.12 1.18 1.18 1.15 1.22 1.31 1.34 — — — — —

65–69 1.05 1.04 1.05 1.08 1.08 1.06 1.13 1.15 1.10 1.17 1.27 1.28 — — — — — — — —

70–74 1.04 1.04 1.02 1.08 1.11 1.06 1.13 1.24 1.25 — — — — — — — — — — —

75–79 1.03 1.04 1.03 1.07 1.14 1.20 — — — — — — — — — — — — — —

80–84 1.05 1.11 1.13 — — — — — — — — — — — — — — — — —

85+ — — — — — — — — — — — — — — — — — — — —

*This table calculates the future productivity of specific cohorts relative to older generations, based on fixed education and earnings levels (e.g., 1.00 equals 100.0 percent, meaning one cohort is as productive as its respective older cohort in the future).Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).

Female Total Male Female

1.24 1.27 1.09 1.45

1.39 1.31 1.15 1.39

1.36 1.25 1.17 1.35

1.38 1.36 1.27 1.38

1.36 1.44 1.50 1.56

1.53 — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

TABLE 14B. Cohort Education-Earnings Index* (Using earnings per worker)

+5 Years (2005) +10 Years (2010) +15 Years (2015) +20 Years (2020) +25 Years (2025) +30 Years (2030) +35 Years (2035) +40 Years (2040)

Age in 2000 Total Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total Male

25–29 1.01 1.00 1.02 1.02 1.01 1.03 1.01 0.99 1.02 0.99 0.95 1.02 1.01 0.97 1.05 1.06 1.03 1.10 1.11 1.05

30–34 1.01 1.00 1.01 1.00 0.99 1.00 0.98 0.95 1.01 1.00 0.96 1.03 1.05 1.03 1.08 1.10 1.05 1.12 1.15 1.06

35–39 0.99 0.98 0.99 0.97 0.95 0.99 0.99 0.96 1.02 1.04 1.02 1.07 1.09 1.04 1.10 1.13 1.05 1.21 1.18 1.09

40–44 0.98 0.96 1.00 1.00 0.98 1.03 1.05 1.04 1.08 1.10 1.06 1.11 1.15 1.07 1.23 1.20 1.11 1.37 1.12 1.10

45–49 1.02 1.01 1.03 1.07 1.07 1.08 1.13 1.10 1.11 1.19 1.13 1.24 1.24 1.16 1.37 1.14 1.14 1.16 1.15 1.03

50–54 1.05 1.05 1.05 1.10 1.09 1.09 1.16 1.12 1.19 1.21 1.14 1.31 1.12 1.13 1.14 1.12 1.02 1.24 1.18 1.33

55–59 1.04 1.02 1.04 1.08 1.04 1.11 1.12 1.07 1.20 1.08 1.08 1.10 1.07 0.99 1.17 1.15 1.26 1.21 — —

60–64 1.03 1.02 1.04 1.07 1.05 1.10 1.06 1.07 1.05 1.05 0.99 1.11 1.12 1.23 1.19 — — — — —

65–69 1.04 1.03 1.05 1.04 1.05 1.03 1.03 1.00 1.07 1.10 1.20 1.17 — — — — — — — —

70–74 1.02 1.03 1.01 1.01 1.01 1.04 1.08 1.16 1.17 — — — — — — — — — — —

75–79 0.99 0.97 1.02 1.06 1.12 1.14 — — — — — — — — — — — — — —

80–84 1.04 1.07 1.09 — — — — — — — — — — — — — — — — —

85+ — — — — — — — — — — — — — — — — — — — —

*This table calculates the future productivity of specific cohorts relative to older generations, based on fixed education and earnings levels (e.g., 1.00 equals 100.0 percent, meaning one cohort is as productive as its respective older cohort in the future).Source: Authors’ calculations based on data from the U.S. Bureau of the Census (1997).

Female Total Male Female

1.14 1.17 1.06 1.29

1.25 1.20 1.09 1.38

1.34 1.11 1.09 1.15

1.16 1.11 0.96 1.28

1.28 1.20 1.35 1.22

1.22 — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —


TABLE 15B.Indexed Labor Force (Earnings-Weighted) Adjusted for Cohort Educational Attainment and for Higher LFPRs of Postwar Female Cohorts (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040



TABLE 15A.Indexed Labor Force (Earnings-Weighted) Adjusted for Cohort Educational Attainment and for Higher LFPRs of Postwar Female Cohorts (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040



Projected Changes in Labor Supply per CapitaLabor supply per capita declines modestly over the next40 years for all measures of labor supply, with the smallestdecline computed for the adjusted earnings-indexedlabor force (table 17a). Holding LFPRs constant, theprojected base labor force per capita declines by only 1.2percent between 1997 and 2020 and by 5.1 percent overthe 1997–2040 period. In contrast, the adjusted earnings-indexed labor force per capita in 2020 is 1.9 percenthigher in 2020 than in 1997 and, even in 2040, is only 1.8percent below its 1997 level.

For all measures of labor supply, labor supply per capi-ta increases between 1997 and 2010 and then declines ineach decade after 2010 (table 17b).The adjusted earnings-indexed labor force per capita increases by 0.33 percentper year between 1997 and 2010, but then declines by0.24 percent per year between 2010 and 2020, 0.26

percent per year between 2020 and 2030, and 0.11 per-cent per year between 2030 and 2040. Over the entire30-year period from 2010 to 2040, when demographicconditions are worsening, this measure of labor supplyadequacy declines at a very modest average annual rate of 0.20 percent.

Projected Changes in Labor Supply per Needs-Based PopulationThe needs-based population, derived from Cutler et al.’sindex, grows faster than the population as a whole after1997, causing needs per capita to increase (table 18a).The increase in needs per capita reflects two aspects ofdemographic projections—an increase in the ratio of the over-65 population to the total population and adecline in the ratio of the under-20 population to thetotal population.These changes in population composi-

tion cause consumption needs to increase faster thanpopulation.

Because this index of consumption needs is growingfaster than the population, the decline in labor supplyadequacy over the next 40 years is greater when mea-sured as the ratio of labor supply to the needs-basedpopulation than when measured as labor supply per capi-ta.The adjusted earnings-indexed labor force per needs-adjusted population declines by only 0.2 percent between1997 and 2020, but by 2040 is 5.5 percent below its 1997level (table 18a).10 Using the base labor force as themeasure of labor supply makes the decline look much

worse—8.6 percent by 2040. The adjusted earnings-indexed labor force per needs-based population increasesby 0.27 percent per year between 1997 and 2010, butthen declines by 0.37 percent per year, 0.39 percent peryear, and 0.15 percent per year in the three followingdecades (table 18b).

Required Labor Force Participation Increases toKeep Labor Supply Adequacy ConstantThe projections of labor supply presented thus far assumethat people’s behavior will remain unchanged at 1997levels.The only adjustments we make are to assume that


TABLE 16B.Base Summary Measures (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040

Working-AgePopulation 1.03 0.43 –0.04 0.29 119.1 122.2

Base Labor Force 0.92 0.38 0.15 0.20 116.9 121.8Adjusted Base

Labor Forcea 0.95 0.46 0.20 0.24 118.4 124.2Earnings-Indexed

Labor Forceb 1.04 0.40 0.18 0.25 119.0 125.0Adjusted Earnings-Indexed

Labor Forcec 1.12 0.42 0.23 0.22 120.6 126.0

a. Adjusted for higher labor force participation of postwar female cohorts (table 10b).b. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11b).c. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15b).Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

TABLE 16A.Base Summary Measures (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040


Base Labor Force 100.0 103.2 108.2 112.6 115.5 116.9 117.7 118.7 120.2 121.8Adjusted Base

Labor Forcea 100.0 103.2 108.3 113.1 116.6 118.4 119.6 120.9 122.5 124.2Earnings-Indexed

Labor Forceb 100.0 104.2 109.8 114.3 117.4 119.0 120.0 121.2 123.0 125.0Adjusted Earnings-

Indexed Labor Forcec 100.0 104.2 110.6 115.6 118.8 120.6 122.0 123.4 124.7 126.0

a. Adjusted for higher labor force participation of postwar female cohorts (table 10a).b. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11a).c. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15a).Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).


TABLE 17B.Summary Measures Relative to Total Populationa (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040

Working-AgePopulation 0.23 –0.24 –0.53 –0.02 100.7 95.2

Base Labor Force 0.13 –0.28 –0.34 –0.06 98.8 94.9Adjusted Base

Labor Forcea 0.16 –0.20 –0.29 –0.05 100.1 96.8Earnings-Indexed

Labor Forceb 0.24 –0.26 –0.31 –0.01 100.6 97.4Adjusted Earnings-Indexed

Labor Forcec 0.33 –0.24 –0.26 –0.11 101.9 98.2

a. Adjusted for higher labor force participation of postwar female cohorts (table 10b).b. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11b).c. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15b).Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

TABLE 17A.Summary Measures Relative to Total Population (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040


Base Labor Force 100.0 100.4 101.3 101.6 100.7 98.8 96.8 95.5 95.0 94.9Adjusted Base

Labor Forcea 100.0 100.4 101.4 102.1 101.7 100.1 98.4 97.2 96.8 96.8Earnings-Indexed

Labor Forceb 100.0 101.4 102.8 103.2 102.4 100.6 98.7 97.5 97.2 97.4Adjusted Earnings-

Indexed Labor Forcec 100.0 101.4 103.6 104.3 103.6 101.9 100.3 99.2 98.5 98.2

a. Adjusted for higher labor force participation of postwar female cohorts (table 10a).b. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11a).c. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15a).Source: Authors’ calculations based on data from the Social Security Administration Office of the Chief Actuary (1997) and the U.S. Bureau of the Census(1965–1997).

women’s labor force behavior when they age will be con-sistent with the behavior of recent birth cohorts ratherthan the behavior of older women in 1997 and to reflectdifferences among age groups and cohorts in earningsand educational attainment. The projections show thatthe measures of labor supply adequacy constructed in thisreport are all lower in 2040 than in 1997.This section ofthe report provides estimates of the increases in laborforce participation of older workers that would berequired to restore labor supply adequacy measures in2040 to their 1997 levels.We consider three patterns ofincreased labor force participation: (1) an increase for

people ages 55 to 64 only, (2) an increase for people ages65 and over only, and (3) a proportional increase in all agegroups over 55.

Restoring the 1997 earnings-indexed labor force percapita in 2040 (excluding the education adjustment fromthe labor force measure) would require labor forceparticipation to increase by about 12.5 percent in all agegroups over 55 (from 59.3 percent to 66.8 percent in the55–64 group and from 12.3 percent to 13.8 percent inthe over-65 group) if the percentage increases in partici-pation were the same for all age groups over 55 (table19a). If labor force participation were unchanged for

people 65 and over, the required labor force participationin the 55–64 group increases to 68.6 percent—a growthof about 16 percent relative to the baseline participationrate. If labor force participation were unchanged forpeople ages 55 to 64, the required labor force participa-tion in the over-65 group would be 20.0 percent—a

growth of about 63 percent relative to the baselineparticipation rate.

Restoring the 1997 ratio of the earnings-indexedworkforce to the needs-based population in 2040 wouldbe much more difficult than restoring the 1997 earnings-indexed labor force per capita. If participation rates were


TABLE 18A.Summary Measures Utilizing Needs-Based Populationa (Indexed relative to 1997)

1997 2000 2005 2010 2015 2020 2025 2030 2035 2040

Needs-Based IndicesNeeds-Based Population 100.0 102.8 107.1 111.6 116.4 120.9 125.0 128.6 131.3 133.3Needs per Capita 100.0 100.0 100.3 100.8 101.5 102.1 102.8 103.4 103.8 103.9Labor Force Measures Relative

to Needs-Based PopulationWorking-Age Population 100.0 100.4 101.8 102.3 101.2 98.6 95.1 92.3 91.5 91.7Base Labor Force 100.0 100.4 101.0 100.9 99.3 96.7 94.1 92.3 91.6 91.4Adjusted Base Labor Forceb 100.0 100.4 101.1 101.3 100.2 98.0 95.7 94.0 93.3 93.1Earnings-Indexed Labor Forcec 100.0 101.3 102.5 102.4 100.9 98.5 96.0 94.2 93.7 93.8Adjusted Earnings-Indexed

Labor Forced 100.0 101.3 103.2 103.5 102.1 99.8 97.6 96.0 94.9 94.5

a. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.

b. Adjusted for higher labor force participation of postwar female cohorts (table 10a).c. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11a).d. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15a).Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

TABLE 18B.Summary Measures Relative to Needs-Based Populationa (Annual growth rates)


1997–2010 2010–2020 2020–2030 2030–2040 2020 2040

Working-AgePopulation 0.17 –0.37 –0.65 –0.07 98.6 91.7

Base Labor Force 0.07 –0.42 –0.47 –0.10 96.7 91.4Adjusted Base

Labor Forceb 0.10 –0.34 –0.41 –0.09 98.0 93.1Earnings-Indexed

Labor Forcec 0.18 –0.39 –0.44 –0.05 98.5 93.8Adjusted Earnings-Indexed

Labor Forced 0.27 –0.37 –0.39 –0.15 99.8 94.5

a. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.

b. Adjusted for higher labor force participation of postwar female cohorts (table 10b).c. Cumulative adjustment, which also adjusts for the relative earnings weights of cohorts (table 11b).d. Cumulative adjustment, which also adjusts for the changes in cohort educational attainment (table 15b).Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

to rise by the same proportionate amount for all agegroups over 55, the required increase in the LFPR forpeople over 55 would be about 31 percent. The LFPRwould have to increase to 78.0 percent in the 55–64 agegroup and 16.2 percent in the 65-and-over age group.

The required increase in the LFPR to restore 1997labor supply adequacy would be smaller if the education-adjusted and earnings-indexed workforce is used as themeasure of effective labor supply. Maintaining the ratio ofthis measure of labor supply to total population wouldrequire an 8 percent increase in labor force participationon average for workers over age 55—to 64.3 percent forworkers ages 55 to 64 and to 13.3 percent for workers

ages 65 and over (table 19b).The increase in participationrequired to keep the ratio of labor supply to the needs-based population from falling would be about 27 percentif the change is proportional for all groups over age 55.

No matter what measure we use, restoring 1997 laborsupply adequacy in 2040 is not the same as ensuring thatlabor supply adequacy rises continuously. Even if laborsupply adequacy in 2040 is equal to its 1997 level, it willremain below the peak it will reach early in the twenty-first century. Moreover, the required increases in laborsupply necessary to maintain the 1997–2010 growth ratein labor supply adequacy into the middle years of thetwenty-first century are so great as to be implausible.


TABLE 19A.Required Changes in Labor Force Participation Ratesa (Earnings-indexed labor forceb)

Relative to Total Population Relative to Needs-Based Populationc

All Change All Change Proportional All Change All Change Proportionalin Single in Single Change in All in Single in Single Change in All

Ages 1997 LFPRs Age Groupd Age Groupd Age Groupse Age Groupd Age Groupd Age Groupse

55–64 59.3% 68.6% 0.0% 66.8% 82.6% 0.0% 78.0%65+ 12.3% 0.0% 20.0% 13.8% 0.0% 31.6% 16.2%

a. This table calculates the required labor force participation rates in 2040 to maintain the ratio of the earnings-indexed labor force to the total population(and needs-based population) from its initial level in 1997 (base year).

b. This labor force measure includes the first two adjustments only (higher female LFPRs and earnings-weighted).c. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:

0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.d. This column assumes that all of the necessary change is borne by only one respective age group.e. This column assumes that the necessary change is proportionately borne by the two age groups by their levels relative to the total earnings-indexed labor

force in 2040.Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

TABLE 19B.Required Changes in Labor Force Participation Ratesa (Adjusted earnings-indexed labor forceb)




55–64 59.3% 65.8% 0.0% 64.3% 79.8% 0.0% 75.1%65+ 12.3% 0.0% 16.8% 13.3% 0.0% 26.6% 15.6%

a. This table calculates the required labor force participation rates in 2040 to maintain the ratio of the earnings-indexed labor force to the total population(and needs-based population) from its initial level in 1997 (base year).

b. This labor force measure includes all three adjustments (higher female LFPRs, earnings-weighted, and cohort educational attainment).c. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:

0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.d. This column assumes that all of the necessary change is borne by only one respective age group.e. This column assumes that the necessary change is proportionately borne by the two age groups by their levels relative to the total earnings-indexed labor

force in 2040.Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

While it is conceivable that the ratio of labor supply toconsumption needs could,with some behavioral changes,remain at today’s levels when the late baby boomers reachretirement age, a decline in adequacy throughout thebaby boomers’ retirement years is still implied.

In the next section of the report, we consider howlabor supply might increase if people adjust the length oftheir working lives to reflect the projected increases in lifeexpectancy of more recent birth cohorts of men andwomen.

Projections Assuming Years of Retirement Held ConstantThe above projections of labor supply all assume thatLFPRs remain fixed in each age group, thus implying thatover time people keep their age of retirement fixed.Withlengthening life spans, keeping the retirement age fixedmeans people will spend an increasing number of years inretirement.An alternative perspective on keeping behav-ior constant would assume that people choose their timeof retirement so as to keep their expected years in retirement

constant.With life expectancy increasing, age at retirementwill also increase.11

In this section, we calculate increases in LFPRsassuming that people ages 55 to 75 maintain a constantexpected number of years in retirement after 1997. Toimplement this calculation, we convert the actual age ofeach cohort ages 55 to 75 in 2020 and 2040 into a life-expectancy-adjusted age at which,on average, the remainingyears of life of members of the cohort are the same as in1997. For example, if a male age x in 2020 can expect tolive an additional y years, his life-expectancy-adjusted agein 2020 is the age in 1997 at which he could expect tolive an additional y years. Based on SSA actuarial tables,the life-expectancy-adjusted age differs from the actualage for all age groups over 55 of both males and femalesby between one and two years in 2020 and by betweentwo and three years in 2040.To be conservative, we usethe smaller end of the range for the adjustment. Forexample, we assume that a 75-year-old male in 2020 hasthe same LFPR as a 74-year-old male in 1997, and a 75-year-old male in 2040 has the same LFPR as a 73-year-


TABLE 20A.Life-Expectancy-Adjusted Labor Force Measuresa (Indexed relative to 1997)

Education-Adjusted,Adjusted Base Labor Forceb Earnings-Indexed Labor Forcec

1997 2020 2040 1997 2020 2040

BaseTotal 100.0 120.4 127.8 100.0 123.5 131.5Male 100.0 119.9 126.9 100.0 122.9 131.8Female 100.0 121.0 128.9 100.0 124.8 131.1Relative to Total PopulationTotal 100.0 101.7 99.6 100.0 104.3 102.5Male 100.0 101.3 98.9 100.0 103.8 102.7Female 100.0 102.2 100.4 100.0 105.4 102.1Relative to Needs-Based Populationd

Total 100.0 99.6 95.9 100.0 102.2 98.7Male 100.0 99.2 95.2 100.0 101.6 98.8Female 100.0 100.1 96.7 100.0 103.2 98.3

a. This table recalculates the labor force measures in previous tables under the assumption that older workers (ages 55–75) have longer life expectancies. We assume that this longer life expectancy directly correlates with extending one’s working years. Thus, we estimate that in 2020, workers participate inthe labor force at the rate of the cohort aged one year younger than them. Similarly, in 2040, we estimate that workers will participate at the rate of thecohort aged two years younger than them. Relative earnings values and education adjustments are assigned in a parallel fashion.

b. This measure is the base labor force adjusted for higher female labor force participation and the life expectancy adjustment.c. This labor force measure includes all three adjustments (higher female LFPRs, earnings-weighted, and cohort educational attainment), in addition to the life

expectancy adjustment.d. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:

0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).


TABLE 20B.Required Changes in Labor Force Participation Ratesa (Life-expectancy-adjusted labor forceb)




55–64 59.3% 51.6% 0.0% 53.6% 63.6% 0.0% 62.6%65+ 12.3% 0.0% 7.6% 11.1% 0.0% 14.9% 13.0%

a. This table calculates the required labor force participation rates necessary in 2040 to maintain the ratio of the life-expectancy-adjusted labor force to the total population (and needs-based population) from its initial level in 1997 (base year).

b. This labor force measure includes all three adjustments (higher female LFPRs, earnings-weighted, and cohort educational attainment), in addition to the life expectancy adjustment.

c. The needs-based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.

d. This column assumes that all of the necessary change is borne by only one respective age group.e. This column assumes that the necessary change is proportionately borne by the two age groups by their levels relative to the total life-expectancy-adjusted

labor force in 2040.Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau of the Census (1965–1997).

TABLE 20C.Life-Expectancy-Adjusted Labor Force Measuresa (Annual growth rates)

Adjusted Base Labor Forceb Education-Adjusted, Earnings-Indexed Labor Forcec

Annual Growth (%) Indexed Relative to Annual Growth (%) Indexed Relative toover Period 1997 (=100) over Period 1997 (=100)

1997–2020 2020–2040 2020 2040 1997–2020 2020–2040 2020 2040

Base Total 0.81 0.30 120.4 127.8 0.92 0.32 123.5 131.5Male 0.79 0.29 119.9 126.9 0.90 0.35 122.9 131.8Female 0.83 0.32 121.0 128.9 0.97 0.25 124.8 131.1Relative to Total PopulationTotal 0.07 –0.10 101.7 99.6 0.19 –0.09 104.3 102.5 Male 0.06 –0.12 101.3 98.9 0.16 –0.05 103.8 102.7Female 0.10 –0.09 102.2 100.4 0.23 –0.16 105.4 102.1Relative to Needs-Based Populationd

Total –0.02 –0.19 99.6 95.9 0.09 –0.17 102.2 98.7Male –0.04 –0.20 99.2 95.2 0.07 –0.14 101.6 98.8Female 0.00 –0.17 100.1 96.7 0.14 –0.24 103.2 98.3

a. This table recalculates the labor force measures in previous tables under the assumption that older workers (ages 55–75) have longer life expectancies. We assume that this longer life expectancy directly correlates with extending one’s working years. Thus, we estimate that in 2020, workers participate in the labor force at the rate of the cohort aged one year younger than them. Similarly, in 2040, we estimate that workers will participate at the rate of the cohort aged two years younger than them. Relative earnings values and education adjustments are assigned in a parallel fashion.

b. This measure is the base labor force adjusted for higher female labor force participation and the life expectancy adjustment.c. This labor force measure includes all three adjustments (higher female LFPRs, earnings-weighted, and cohort educational attainment), in addition to the life

expectancy adjustment. d. The needs–based population measure is derived from Cutler et al. (1990). The relative “needs” weights for each subgroup of the population are as follows:

0.72 for people ages 0–19, 1.00 for people ages 20–64, and 1.27 for people ages 65 and over.Note: LFPRs = labor force participation rates.Source: Authors’ calculations based on data from Cutler et al. (1990); the Social Security Administration Office of the Chief Actuary (1997); and the U.S. Bureau ofthe Census (1965–1997).


old male in 1997. Earnings and education weights areapplied to participation rates in a similar manner as inprevious calculations to determine the measures of effec-tive labor supply.

Using the life-expectancy-adjusted age as the basis forprojecting labor force participation increases the estimat-ed labor supply index (as measured by the education-adjusted, earnings-indexed labor force) to 123.5 in 2020and 131.5 in 2040—an increase of about 2.4 percent in 2020 and 4.4 percent in 2040, compared with theestimates using fixed age-specific participation rates (table20a).The labor supply index per capita is higher in 2040than in 1997, and the labor supply per needs-weightedpopulation is only about 1.3 percent lower. In short, ifpeople increase their years of work to reflect their longerexpected life spans, the labor supply adequacy index in2040 will be very close to the value of the index today.Maintaining labor supply per capita will require no addi-tional adjustment in participation rates; maintaining laborsupply per needs-adjusted population will require amodest additional average increase of about 5 percent in LFPRs for people over age 55 (table 20b).

The increased LFPRs will not, however, be sufficientto keep labor supply adequacy measures from decliningwhen the baby boomers are exiting the labor force (table20c).Relative to both the total population and the needs-based population, the effective labor force will declinebetween 2020 and 2040, after increasing between 1997and 2020.

CONCLUSIONS

Projected changes in the age composition of the popula-tion in the next 40 years will reduce living standards,relative to what they would be if the age composition ofthe population remained fixed, because of a decline inworkers per capita and an increase in the share of depen-dent elderly in the population. In this report, we projectfuture labor supply relative to the total population and toa measure of needs-weighted population that assumesthat, compared with working-age adults, costs of livingare higher for people over age 64 and lower for peopleunder age 20. The projections show that labor supplyrelative to both the total population and the needs-weighted population increases between 1997 and 2010,but then declines from 2010 through 2040. By the year2040, the ratio of the total labor force to the needs-weighted population is projected to be about 9 percentlower than in 1997.

Adjusting to this decline in the ratio of labor supplyto consumption needs will be quite difficult because thedecline will follow a long period of improvement inlabor supply adequacy spanning the latter part of thetwentieth century and the first decade of the twenty-first century. The increase in the ratio of labor supply to consumption needs in the past several decades wasthe result of both an increase in the relative size of theworking-age population and a net increase in LFPRswithin age groups because of the increased labor forceparticipation of women. Overall, the labor force perneeds-weighted population will increase by 27 percentbetween 1965 and 2010—an average increase of 0.53percent per year.

But some mitigating circumstances make the projec-tions look less gloomy.The future workforce will be, onaverage, more experienced and educated than today’sworkforce. These improvements will raise output perworker. If postwar birth cohorts of women maintain theirhigher LFPRs relative to earlier cohorts as they age, laborforce participation of women over age 55 will be higherin the future than it is today.Taking all these adjustmentsinto account raises our estimate of labor supply in 2040by about 4 percent and makes labor supply per needs-weighted population in 2040 only about 5 percent belowits 1997 level.

One reason for the increase in the share of elderly inthe population is that life expectancy at age 55 and overis expected to be higher for future cohorts than for menand women ages 55 and over today. If people were toadjust their retirement behavior to maintain a constantnumber of years in retirement as life expectancy increas-es, rather than retiring at a constant age, LFPRs of olderworkers would increase. We estimate that, under thisassumption, the increase in labor force participation ofolder workers will be almost enough to make the 2040ratio of labor supply to needs-weighted population equalto the 1997 ratio. If this occurs, reduced growth in laborsupply will not by itself contribute to lower livingstandards in the future than in 1997.

These results provide cause for cautious optimism butnot for complacency.This report has analyzed changes inlabor force adequacy but has not addressed the importantissue of whether baby boomers are saving enough forretirement. It has also not addressed the structure of gov-ernment programs for the elderly, including SocialSecurity and Medicare.These programs are not in long-run balance with current rules and will require revisionin the future, if not now. Our projections suggest onlythat demographic changes in themselves might not con-


REFERENCES

Cutler, D., J. Poterba, L. Sheiner, and L. Summers. 1990.“An Aging Society: Opportunity or Challenge?”Brookings Papers on Economic Activity 1: 1–73.

Dalaker, J., and M. Naifeh. 1997.“Poverty in the UnitedStates: 1997.” Current Population Reports P60-201.Washington, D.C.: U.S. Bureau of the Census.

Getzen,T. 1992.“Population Aging and the Growth of Health Care Expenditures.” Journal of Gerontology 47(3): 98–104.

Quinn, J. 1999.“Retirement Patterns and Bridge Jobs inthe 1990s.” Employee Benefit Research Institute (EBRI)Issue Brief No. 206.Washington, D.C.: EBRI.

Social Security Administration Office of the ChiefActuary. 1997.“Social Security Area PopulationProjections: 1997.”Actuarial Study No. 112. Baltimore:Social Security Administration Office of the ChiefActuary.

U.S. Bureau of the Census. 1997. “1965–1997 Current Population Survey (CPS) March Supplement.”Washington, D.C.: U.S. Bureau of the Census.

tribute to a decline in the adequacy of labor supply if rea-sonable adjustments in the labor force behavior of work-ers over age 55 occur.

Even with the adjustments described in this report,maintaining the rate of improvement in labor supply ade-quacy that has occurred between 1965 and 1997 and thatwill continue to occur between 1997 and 2010 will beextremely difficult.The projections suggest that no matterwhat measure we use, these gains will be more than elim-inated between 2010 and 2040.While the future does notlook so bad compared with today, it looks worse com-pared with 2010 and even worse compared with expec-tations of rising income that may be generated by growthbetween 1997 and 2010. Both the public and private sec-tors should take steps now to prepare for the inevitableincrease in the cost of supporting an aging population inthe future.


ENDNOTES

The authors are grateful to Rudy Penner, Gene Steuerle, LarryThompson, Sheila Zedlewski, and Chris Spiro for helpful commentsand advice.

1Poverty-level incomes are lower for individuals and couples ages 65and over than for the nonelderly, but the income measure used todefine poverty does not include the insurance value of governmenthealth subsidies in income. Counting Medicare and Medicaid costs in income would make the poverty-level incomes of the elderlyhigher than the poverty-level incomes of individuals and couplesunder age 65. See Dalaker and Naifeh 1997.

2Use of the Cutler et al. measure, or any measure with fixed weightsfrom a base year, may understate the growth of consumption require-ments over time if the unit costs of health care are increasing. In thatcase, the consumption-needs weights would not be stable; risinghealth care costs would increase the consumption-needs weight ofelderly households over time. But to the extent that rising healthspending reflects technological improvements instead of increases inthe cost of a fixed quality of care, a definition of “need” arguablyshould not incorporate a choice to consume more health servicesover time.

Some research using time-series data suggests that aging does notincrease total national health expenditures, once other influences onhealth spending are accounted for. For a discussion of this researchand its possible implications, see Getzen 1992.

3This calculation can be represented by the equation:(L/N) = [(Li /Ni )* (Ni /N)] + [ (Li /Ni )*(Ni /N)] + [ (Li /Ni )* (Ni /N)], where L = total labor force, N = total

population, Li and Ni are labor force and population in each age/gender group i, and represents the change in a variable.

4The unusually high level of earnings per worker for males over age 85 (152 percent of average earnings) probably reflects a selectivesurvival pattern; the small number of men who live past age 85 and remain in the labor force most likely consist of the most highlyproductive men in their birth cohort, who had even higher earningswhen younger.

5This calculation assumes that relative earnings accurately measure therelative labor force contributions of males and females.To the extentthat lower relative earnings of females in 1997 reflect market discrim-ination instead of other factors, such as fewer average hours of workor lower average levels of education and experience, the earnings-weighted labor force measure understates the growth of the effectivelabor supply between 1965 and 1997.

6Our population figures are from the intermediate alternativeprojections of the Social Security Administration, Office of the Chief Actuary (1997).

7There is evidence that, since 1985, the long-term trend toward earli-er retirement has halted for males and reversed itself for females.There is no evidence yet that men are working longer, although pollstaken by the American Association of Retired Persons (AARP) indi-cate that a much greater fraction of baby boomers expect to work atleast part-time after age 65 than the percentage of 65-to-69-year-oldAmericans in the workforce today. (See Quinn 1998.)

8Specifically, we project labor force participation of postwar birthcohorts of women over age 50 using the equation:LFP(w, a) = LFP(m, a)*LFP (w, 45–49)/LFP (m, 45–49), where LFP(w, a) = labor force participation rate of women in an age group“a” that is over 50, LFP (m, a) = labor force participation rate of menin an age group “a” that is over 50, LFP (w, 45–49) = labor forceparticipation rate of women ages 45 to 49 in 1997, and LFP (m, 45–49) = labor force participation rate of men ages 45 to 49 in 1997.

9Of course, the nonworking elderly support themselves in partthrough consumption from savings accumulated in their workingyears.This report does not address how demographic changes willaffect changes in wealth per capita over the next 40 years.

10In comparison, Cutler et al. (1990) projected that the ratio of theearnings-weighted labor supply to the needs-based population woulddecline by 10.5 percent between 1990 and 2040 and by 13.3 percentbetween 2000 and 2040.Thus, compared with those earlier projec-tions, our projections of future changes in labor supply adequacy areconsiderably less pessimistic.

11The authors are indebted to Gene Steuerle for suggesting thisperspective.

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