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Adjusting to an Aging Labor Force

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  • Edward P. Lazear

Abstract

Demographic changes in the labor force will imply that firms must change their labor policies in the coming decades. My estimates suggest that the labor force will get older and more female. The aging will not be as pronounced for males as for females because the trend toward early retirement among males will offset demographic changes. The size of the labor force will grow until around 2015 and then will decline. Given these changes, there are a number of issues that face employers. First, the aging workforce may mean an increase in the size of the firm's current deficit, defined as the difference between sales and labor cost. Second, under these circumstances, firms may do well to invest in assets that are highly correlated with the nominal wage bill liability. Short-term treasury bills are a good candidate, as is, paradoxically, putting pension assets back in the capital of the firm itself. This strategy can reduce the risk of bankruptcy. Third, explicit buyouts are the easiest way to reduce the size of the elderly workforce. But this will not help the individual firm's deficit problem. Fourth, declining ages of retirement among males can be reversed by changes in social security policy. A decline in real benefits and increase in the age of entitlement are likely to have the largest effects on raising the retirement age.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2802.

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Date of creation: Dec 1988
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Publication status: published as David A. Wise, editor. Issues in the Economics of Aging. Chicago: The University of Chicago Press, 1990, pp. 287-312.
Handle: RePEc:nbr:nberwo:2802

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  1. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-75, September.
  2. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
  3. repec:fth:stanho:e-88-18 is not listed on IDEAS
  4. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
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Cited by:
  1. Vegard Skirbekk, 2003. "Age and individual productivity: a literature survey," MPIDR Working Papers WP-2003-028, Max Planck Institute for Demographic Research, Rostock, Germany.
  2. Daniel van Vuuren & Paul de Hek, 2010. "Are older workers overpaid? A literature review," CPB Discussion Paper 165, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Vegard Skirbekk, 2004. "Age and Individual Productivity: A Literature Survey," Vienna Yearbook of Population Research, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna, vol. 2(1), pages 133-154.
  4. Hendrik P. van Dalen & Kène Henkens & Wilma Henderikse & Joop Schippers, 2010. "Do European employers support later retirement?," International Journal of Manpower, Emerald Group Publishing, vol. 31(3), pages 360-373, July.
  5. Louise Sheiner, 1999. "Health care costs, wages, and aging," Finance and Economics Discussion Series 1999-19, Board of Governors of the Federal Reserve System (U.S.).
  6. Michael Beckmann, 2007. "Age-Biased Technological and Organizational Change: Firm-Level Evidence and Management Implications," Working papers 2007/05, Faculty of Business and Economics - University of Basel.
  7. Phillip B. Levine & Olivia S. Mitchell, 1991. "Expected Changes in the Workforce and Implications for Labor Markets," NBER Working Papers 3743, National Bureau of Economic Research, Inc.
  8. Hendrik P. Van Dalen & Kène Henkens & Joop Schippers, 2010. "How do employers cope with an ageing workforce?," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 22(32), pages 1015-1036, June.
  9. Jean-Louis Guérin & Julien Genet & Loïc Cadiou, 2002. "Évolutions démographiques et marché du travail : des liens complexes parfois contradictoires," Économie et Statistique, Programme National Persée, vol. 355(1), pages 139-156.

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