As the "Baby Boom" Generation Reaches Retirement Age, How Will It Affect the Job Market?

For decades, the retirement of the infant smash generation has been a looming economic threat. Now, it'due south no longer looming — it's here. Every month, more than a quarter-million Americans turn 65. That'south a trend with profound economical consequences. Just put, retirees don't contribute as much to the economic system as workers practice. They don't produce anything, at least direct. They don't spend as much on average. And they're much more than likely to depend on others — the government or their ain children, nearly oft — than to back up themselves.

The recession may accept delayed the inevitable for a time. The financial crisis wiped away billions in retirement savings, forcing many Americans to work longer than planned. But the stock market has since rebounded, and there are signs that more Americans are at final feeling confident enough to leave the workforce. The labor forcefulness participation charge per unit for older Americans — the share of those 55 and older who are working or actively looking for work — has fallen over the by yr after ascent through the recession and early on years of the recovery. Roughly 17 per centum of babe boomers at present report that they are retired, up from 10 percent in 2010.¹

Now that the wave has begun, zip is probable to stop it. The Census Bureau on Tuesday released a pair of reports that show just how dramatic an impact the graying of the population volition have in coming decades.

Nearly a quarter of Americans were born betwixt 1946 and 1964, the typical definition of the baby boom generation. That'southward more than 75 1000000 people. In their heyday, the boomers were an unprecedented economical forcefulness, pushing upwardly rates of homeownership, consumer spending and, about important of all, employment. It'southward no coincidence that the U.S. labor force participation charge per unit — the share of the adult population that has a job or is trying to find one — hit a record high in the tardily 1990s, when the boomers were at the elevation of their working lives.

It's been downhill ever since. The participation rate hit a 36-twelvemonth low last month, and while in that location are multiple reasons for the decline, the crumbling of the babe blast generation is a dominant factor. In 2003, 82 percent of boomers were part of the labor strength; a decade later on, that number has declined to 66 percent, and it will just proceed to fall.

All else equal, fewer workers means less economic growth. One way to mensurate this is a effigy known every bit the "dependency ratio," or the number of people outside of working age (under xviii or over 64) per 100 adults between age 18 and 64.² The higher the ratio, the worse the news: If more than of the population is young or old that leaves fewer working-age people to support them and contribute to the economy.

The U.S. dependency ratio has been improving in recent decades, falling from 65 in 1980 to 61 in 2000 to 59 in 2010. Only at present the trend is set to reverse. Past 2020, the Census Bureau estimates, the U.S. dependency ratio will be back to 65; in 2030, it will be 75, the worst since the 1960s and 1970s, when the baby boomers were children.

The dependency ratio is a edgeless instrument. Not anybody retires the day they turn 65; indeed, as lifespans lengthen (and pensions decline), more people are working later in life. But simply upwardly to a point: Enough of people work past 65; few work by 85.ⁱⁱⁱ It volition exist a while withal earlier baby boomers showtime turning 85, but more than of them volition go in that location than whatsoever previous generation. Past 2050, more than 4 percent of the population will be at least 85 years old, more than double today'southward effigy.⁴

As bad equally the U.S. demographics look, things are worse in much of the world. The U.S. has fewer residents over 65, equally a share of its population, than most adult countries, and the disparity will only grow in coming decades. In 2050, most 21 per centum of the U.S. population will be 65 or older compared to more than xxx percent in much of Western Europe and an incredible xl percent in Japan. China, as a result of its "one kid" policy, faces its ain, somewhat different, demographic crunch.

One reason the U.S. is in amend shape is its comparatively loftier charge per unit of clearing. Since people tend to migrate when they are younger, immigrants tend to bring downwards the age of the population every bit a whole. Moreover, at least in the U.S., immigrants tend to have a higher birth rate than the native-born population, although the gap has narrowed somewhat in recent years. The future direction of immigration, therefore, makes a big difference to the age breakup of the U.S. population. The Demography Bureau's demographic estimates are based on a middle-of-the-road project of future clearing, but the bureau too publishes culling scenarios. In the "high immigration" scenario, the U.South. has virtually 22 million more working-age residents in 2050 than in the "low immigration" case.

The U.Due south. also has some other trend working in its favor: Babe boomers are retiring simply equally their children — sometimes known equally the "echo boomers" — are entering their prime working years. Boomers are no longer even the largest age accomplice; more of today'due south Americans were born in the 1980s and 1990s than in the postwar years. Every bit today'south teens and 20-somethings enter the workforce, they volition partly offset their parents' exit. Indeed, for many young people, mom and dad can't retire soon plenty; some experts argue that boomers, past staying in the workforce longer than past generations, are essentially clogging the usual professional pathways, leaving few opportunities for people offset their careers.

Thanks in part to the echo boomers, the dependency ratio volition flatten out past nigh 2030. Non that long thereafter, the oldest of the echo boomers will brainstorm entering their ain retirement years, and the bicycle volition begin anew.

Footnotes

1. Full-year estimates are based on Current Population Survey microdata.

2. This is the Census Agency'due south definition. Other agencies use unlike historic period cutoffs. The World Bank, for instance, defines "working age" more broadly, as those between 16 and 65.

3. The employment-to-population ratio for Americans 65 and up was 17.vii percent in 2013. For those 85 and up, it was 3.5 per centum, co-ordinate to Current Population Survey data.

4. The rising over-85 population is partly the result of the sheer size of the baby boom generation, but it is besides the result of increased life expectancy.

Ben Casselman was a senior editor and the chief economics author for FiveThirtyEight. @bencasselman

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