Retiring Baby-Boomers = A Labor Shortage?
Prepared for Members and Committees of Congress
The unemployment rate in 2007 averaged just 4.6%, which is low by historic standards and
suggests the presence of tight labor market conditions that are related to long-running
demographic trends. The oldest members of the baby-boom generation turned age 60 at the end of
2006, and every year thereafter, more of this large birth-cohort will move into the ages when
workers traditionally have retired. Consequently, the business community in particular has
asserted that the future supply of labor will fall short of employer demand and that U.S. economic
growth and competitiveness would be put in jeopardy.
Based upon a CRS analysis of the current employment patterns of baby-boomers across industries
and occupations and of occupational employment projections within industries, many industries
throughout the economy (e.g., insurance, manufacturing, mining, public administration, real
estate, transportation, wholesale trade, utilities) appear to be highly dependent on baby-boom
workers and to face the prospect of tightening labor market conditions as more of them move into
the traditional retirement ages. Baby-boom dependent industries that seek both to replace all
boomers who retire from occupations critical to their operations and to increase employment in
those fields could face the most intense competition for workers in the near term (e.g.,
educational services and health care services).
An actual shortage of workers is unlikely in the long run because companies can be expected to
take various actions in response to the accelerating slowdown in labor force growth—although it
appears few have yet done so. A key assumption of the labor shortage scenario is that firms must
have more workers in the future than at present for the economy to continue to grow. Proponents
of this viewpoint thus are asserting that rates of output growth and labor force growth are closely
and directly linked. But, the economy historically has been able to expand faster than the labor
supply by more efficiently utilizing the available pool of workers.
Another assumption underlying the shortage scenario is that baby-boomers will sharply curtail
their work activity once in their sixties. The degree to which older persons participate in the
workforce already has risen due, in part, to changes that Congress made to the Social Security
retirement system and age discrimination law. Some have urged Congress to make further
modifications to encourage more older individuals to continue working and more employers to
hire and retain them. Similarly, Congress has been urged to further amend immigration law to
permit more foreign labor to be brought into the country to fill jobs for which U.S. workers are
deemed to be in short supply.
Additionally, those who assert that the need to replace retiring baby-boomers will result in a
shortage of workers usually consider only the labor supplied by the baby-bust generation. This 45
million birth-cohort, which immediately followed the 76 million baby-boomers into the labor
force, is not the only source of replacement workers: the 72 million members of the echo-boom
began to enter the workforce during the 1990s. Access to foreign labor through offshore
outsourcing, in addition to guest worker programs, also is often overlooked in the context of
A Slowdown in the Supply of Labor...............................................................................................2
Which Employers Are Most Likely to be Affected?.......................................................................4
Baby-Boom Dependent Industries............................................................................................5
Baby-Boom Dependent Occupations.......................................................................................11
A Baby-Boom Induced Shortage of Labor?..................................................................................13
An “Adequate” Number of Workers.......................................................................................14
The Supply of Labor Domestically and Internationally..........................................................15
The Baby-Boom Generation in “Retirement”...................................................................15
The Echo-Boom Generation as Workers...........................................................................18
Immigration and Offshoring.............................................................................................19
Figure 1. Labor Force Participation Rate by Age Group.................................................................3
Table 1. Civilian Labor Force by Age Group..................................................................................2
Table 2. Baby-Boom Dependent Industries by Selected Baby-Boom Dependent
Occupations .................................................................................................................................. 8
Author Contact Information..........................................................................................................21
.S. employers again have turned their attention to the shortage of labor they anticipate
will occur in the not-too-distant future. Concern about this possibility waned when the
historically low unemployment rates from 1998 to 2000 rose during, and for some two U
years after, the March-November 2001 recession. In 2007, however, the national unemployment 1
rate averaged just 4.6%. This suggests the presence of tight labor market conditions that are
related to long-running demographic trends. The oldest members of the baby-boom generation
will reach 60 years of age by the end of 2006, and every year thereafter, more of the 76 million
persons born between 1946 and 1964 will move into their early 60s, when most workers 2
traditionally have retired. As a consequence, observers—particularly members of the business
community—have expressed the belief that the supply of U.S. labor will fall short of employer 3
demand in coming decades.
While the public budgetary effects of the aging of the baby-boom cohort have been much 4
studied, the implications for the private economy have been less thoroughly researched.
Proponents of the labor shortage scenario assert that the nation’s rate of economic (output) growth
will slow because worker-starved U.S. firms would be unable to produce the quantity of goods
and services demanded by U.S. consumers. They further argue that the competitive position of
U.S. industries will suffer because foreign companies would expand sales not only to the
domestic market but also to other markets now supplied by U.S. firms. Even if businesses were
able to coax more individuals into the U.S. labor force by bidding up wages, it is claimed that a
similar end-result could occur. Employers would try to pass the increased cost of production onto
buyers, resulting in higher prices that, among other things, would diminish the purchasing power
of U.S. workers’ wages. The market share of U.S. businesses could shrink as well, if domestic
and foreign purchasers react to these higher prices by switching to less costly goods and services
from other countries.
This frequently voiced view omits actions that employers could take, other than raising wages, to
ameliorate the labor market tightness they expect to occur when baby-boomers stop working. It
also assumes that baby-boomers will behave similarly to preceding generations of older workers
in terms of the rate at which they participate in the labor force and the length of their working
lives. The scenario similarly does not consider that Congress might take legislative action to
mitigate the effect on the private economy of a perceived shortfall of workers—something it has
done in the recent past (e.g., loosening and raising the cap on H-1B visas for foreign workers in
professional occupations). In addition, shortage proponents often paint firms with a broad brush,
raising the question of whether each firm is as likely as the next to be affected by the baby-
1 Labor force data are available in the U.S. Bureau of Labor Statistics (BLS), Employment and Earnings, or at the BLS
2 According to (1) a measure of the average age of initial receipt of Social Security retirement benefits and Social
Security disability benefits for workers 50-65 years old and (2) a measure of the median age of withdrawal from the
labor force for workers age 50 and older based upon Current Population Survey data, people usually retired at about
age 63 during the 1970s and 1980s and at about 62 during the 1990s. For more information see Murray Gendell,
“Retirement Age Declines Again in 1990s,” Monthly Labor Review, October 2001.
3 See, for example, the Aspen Institute, Grow Faster Together, or Grow Slowly Apart, 2002; John A. Challenger, “The
Coming Labor Shortage,” The Futurist, September/October 2003; Paul Kaihla, “The Coming Job Boom,” Business 2.0,
September 2003; and the U.S. Chamber of Commerce, The State of American Business 2006.
4 Budgetary effects chiefly relate to the solvency of Social Security, Medicare, and Medicaid. For additional
information, see CRS Report RS22008, Federal Spending for Older Americans, by April Grady and William Klunk,
and CRS Report RL32981, Age Dependency Ratios and Social Security Solvency, by Laura B. Shrestha.
This report takes a close look at the labor shortage scenario prompted by baby-boomers moving
from the work phase to the retirement phase of their lives. It first sets forth past and projected
trends in the supply of labor available to U.S. businesses in general. The potential impact of the
baby-boom generation’s withdrawal from the workforce on different industries, and the
occupations within them, is then analyzed. The report concludes with an examination of factors
that could affect the likelihood of an imbalance between labor supply and demand in the coming
With over 153 million persons employed or actively seeking employment in 2007, the labor force
more than doubled in size since 1967. (See Table 1.) Within the 40-year period, however, the
pace of growth fell by more than half during the most recent compared to the first 20 years.
The diminished rate of labor force growth in recent decades is related, in part, to the substantially
reduced number of births in the United States. The cohort of some 76 million individuals born
between 1946 and 1964 was aptly dubbed the baby-boom generation. As the members of this very 5
large group entered the workforce 16 or more years after birth, the baby-boomers greatly
increased the aggregate supply of labor: by 28.0% between 1967 and 1977, and by 21.1%
between 1977 and 1987. (See column 2 of Table 1.) The baby-boom generation was followed
into the labor force by the suitably named baby-bust cohort, which totals some 45 million persons 6
born between 1965 and 1976. The small size of the baby-bust group contributed to the decrease
in young workers and the ebbing of overall labor force growth as its oldest members began to
enter the workforce during the 1980s.
Table 1. Civilian Labor Force by Age Group
Civilian Labor Force (Numbers in Thousands) Year
Total, 16-24 Years Old 25-54 Years Old 55 Years and Older
16 Years and Older
1967 77,347 15,531 47,930 13,889
1977 99,009 24,176 60,321 14,512
1987 119,865 22,965 81,904 14,996
1997 136,297 21,464 98,280 16,553
2007 153,124 22,217 104,353 26,554
Period Change in Size of the Civilian Labor Force (Percent)
1967-1977 28.0 55.7 25.9 4.5
1977-1987 21.1 -5.0 35.8 3.3
1987-1997 13.7 -6.5 19.9 10.4
1997-2007 12.3 3.5 6.2 60.4
5 The official definition of the labor force covers those aged 16 and older.
6 Karl Hartig, “Generation Gaps: Population Growth Affects History’s Course,” Wall Street Journal classroom edition,
1996, available at http://karlhartig.com/chart/demographic.pdf. (Hereafter referred to as Hartig, Generation Gaps.)
Source: U.S. Bureau of Labor Statistics data from the Current Population Survey.
During the 1990s, the baby-boomers continued to buoy the overall supply of labor. By 1989, the
youngest baby-boomers had reached 25 years of age, and the oldest members of the group were
43 years of age. The entire cohort thus was in the prime work-age group (25-54 years old), which
historically has had the highest rate of participation in the labor force. (The labor force
participation rate, shown by age over time in Figure 1, below, is the share of the civilian
noninstitutional population that is employed or actively seeking employment.) In 2007, for
example, more than 4 of every 5 persons in the population aged 25-54 were members of the labor
force; in contrast, about 3 of every 5 individuals aged 16-24 had a job or were looking for one,
while still fewer persons 55 years and older—less than 2 in 5—were attached to the workforce.
The advancement of the numerous baby-boomers into the prime work-ages consequently offset,
in part, the baby-bust’s dampening impact on the supply of labor during the 1990s.
Figure 1. Labor Force Participation Rate by Age Group
19 67 19 72 19 77 19 82 19 87 1 99 2 1 99 7 2 00 2 2 00 7
16 yrs. and older16-24 yrs. old
25-54 yrs. 55 yrs. and older
Source: U.S. Bureau of Labor Statistics data from the Current Population Survey.
After 2000, however,
a segment of the baby-boomer population passes into the 55-years-and-older group and thus
moves from a group with a high participation rate in the labor force to an age category with a 7
much lower participation rate, causing the overall participation rate to decrease.
7 Mitra Toossi, “Labor Force Projections to 2014: Retiring Boomers,” Monthly Labor Review, November 2005, p. 30.
(Hereafter referred to as Toossi, Labor Force Projections to 2014.)
The aging of female baby-boomers already has contributed to the seeming end of the decades-8
long rise in women’s labor force participation, which “[o]n the basis of the current trend . . . 9
reached its peak at 60 percent in 1999, and the trend will be at best flat in the future.” The recent
movement of older baby-boomers into the age range of low rates of supply to the labor force is
shown in column 5 of Table 1.
The youngest members of the baby-boom cohort will have turned 55 years old by 2019, which
could cause the workforce to grow more slowly between 2000 and 2019 than it did between 1980
and 2000. Indeed, the U.S. Bureau of Labor Statistics (BLS) projects that the decelerating rate of
increase in the labor supply could continue through 2020. Although the labor force is projected to
expand from 141 million people in 2000 to 165 million people in 2020, the gain will steadily
dwindle—falling from 1.1% annually over the 2000-2010 period to 0.6% annually over the 2010-10
Further contributing to the slowdown is the progress of the small baby-bust group into the age
range with strong attachment to the labor force. The oldest members of the baby-bust generation
turned 25 years of age in 1990; the youngest, in 2000. They will be among those replacing the
entire baby-boom generation in 2020, when it will have aged out of the 25-to 54-year-old group.
Despite the high rate of labor force participation for those in the prime work-ages shown in
Figure 1, the small number of baby-bust workers means that they
will not be able to compensate for the large cohorts of baby boomers leaving the prime-aged
group and moving into a group with much lower participation rates. The result is a decrease 11
in the overall labor force participation rate and a slower rate of growth of the labor force.
The slowdown in the supply of labor that employers have begun to encounter has led them to
worry about how much harder it will become to hire replacements for baby-boomers as more of
them reach the retirement phase of their lives during the coming decades. The ebbing of labor
force growth could present more of a difficulty for some firms than others, depending on the age
composition of their current workforces. For example, mature industries (e.g., steelmakers) in
contrast with emerging industries (e.g., biotechnology) did much of their hiring many years ago;
hence, baby-boomers probably comprise a larger share of the workforces of mature than
emerging industries. Still other industries are known for having fairly young workforces (e.g.,
leisure and hospitality), and are less likely to have many jobs to fill as a result of retirements.
(Instead, these other industries probably are more concerned about the relatively small additions 12
to the youth labor force shown in Table 1, which is affected by more than demographic trends.)
8 Timothy Schiller, “After the Baby Boom: Population Trends and the Labor Force of the Future,” Business Review,
fourth quarter 2005.
9 Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Monthly Labor Review,
November 2007, p. 35. (Hereafter referred to as Toossi, Labor Force Projections to 2016.)
10 Mitra Toossi, “A Century of Change: the U.S. Labor Force, 1950-2050,” Monthly Labor Review, May 2002.
(Hereafter referred to as Toossi, A Century of Change.)
11 Toossi, Labor Force Projections to 2014, p. 30.
12 One such factor is the rate of school enrollment among 16-to 24-year-olds. Because school enrollment has risen since
the mid-1980s and because students historically have worked to a lesser extent than nonstudents, the overall labor force
The first step in assessing the comparative hiring needs of employers associated with the
retirement of the baby-boom generation was to calculate baby-boomers’ share of employment, 13
overall and by industry in 2005, utilizing Current Population Survey (CPS) data. The industries
estimated to have employed a significantly above-average percentage of baby-boomers in 2005
(more than 42.1% of 41-to 59-year-olds) are considered the most prone to the effect of the 14
group’s withdrawal from the labor force. Within each of the “baby-boom dependent industries,”
CRS next estimated the baby-boomers’ share of employment by occupation to determine the job
categories most likely to develop vacancies due to retirements. (The size of the CPS sample limits
the degree of detail by occupation within industries that could be estimated accurately.)
In addition to identifying baby-boom dependent industries and the occupations within them, the
section immediately below discusses possible reasons for them having a very high prevalence of
41-to 59-year-olds. What the impending retirement of baby-boomers might actually mean for the
industries’ future occupational staffing requirements is analyzed thereafter.
Some 24 of the 51 industries included in the analysis employed a significantly above-average 15
share of baby-boomers in 2005. Although half of the 24 industries are in manufacturing, baby-
boom dependent industries span the economy—from the following industries in the goods-
• forestry, fishing, and hunting;
• mining, including oil and gas extraction; and
• 12 manufacturing industry groups (i.e., textile, apparel, and leather
manufacturing; paper and printing; petroleum and coal products; chemical
manufacturing; plastics and rubber products; nonmetallic mineral product
participation rate of 16-to 24-year-olds has fallen. In addition, the decline in youth’s labor force participation has been
steeper among students. Helen McEwen, Pia Orrenius, and Mary Wynne, “Opting Out of Work: What’s Behind the
Decline in Labor Force Participation?”, Southwest Economy, no. 6, November/December 2006.
13 The latest annual data at the time the study originally was undertaken were for 2005. Substantially the same results
are likely based on more recent CPS data.
14 The CPS is a monthly sample of about 50,000 households drawn from the civilian noninstitutional population.
Estimates of employment and other variables derived from the CPS thus are subject to sampling error. Researchers
utilizing the CPS generally construct confidence intervals, which provide information about the accuracy of the
estimates. Confidence intervals were calculated for the differences, in 2005, between the percentage of all workers who
were baby-boomers and the percentage of workers in each industry and occupation who were baby-boomers. The text
of this report discusses only those industries and occupations in which the estimated share of employment accounted
for by baby-boomers is significantly greater than their estimated share of total employment (i.e., the differences are not
likely due to sampling error).
15 Among the 51 industries included in the study, those that employed lesser shares of baby-boomers in 2005 included
agriculture; construction; four manufacturing industries (wood products, furniture and fixtures, food, and beverage and
tobacco products); retail trade; publishing industries (except Internet); motion picture and sound recording;
broadcasting (except Internet); Internet publishing and broadcasting; telecommunications; Internet service providers
and data processing services; finance; rental and leasing services; professional and technical services; administrative
and support services; waste management and remediation services; social assistance; arts, entertainment, and
recreation; accommodation; food services and drinking places; repair and maintenance; and personal and laundry
manufacturing; primary metal and fabricated metal products; machinery
manufacturing; computer and electronic products; electrical equipment,
appliance, and component manufacturing; transportation equipment
manufacturing; and miscellaneous manufacturing);
to the following industries in the service-producing sector—
• wholesale trade;
• transportation and warehousing;
• real estate;
• educational services (e.g., public and private elementary and secondary schools);
• hospitals, private and public;
• health care services, except hospitals;
• membership associations and organizations; and
• public administration (excluding public schools and hospitals).
The utilities industry (e.g., private and public establishments that provide electricity, natural gas,
and water) has the highest proportion of baby-boomers, with almost 3 of every 5 workers between
41 and 59 years old in 2005. (See column 2 of Table 2.) One possible reason for the marked
incidence of baby-boomers in the industry is its comparatively high unionization rate. While just
12.5% of all persons employed in 2005 were union members, according to CPS data, the figure
among utilities workers was more than twice that, at 28.8%. Older workers are likely to be more
prevalent in highly unionized industries that “thus favor seniority and generally have lower 16
turnover rates due to higher wages and better benefits than nonunion jobs.” In terms of
retirement benefits in particular, the type of pensions that unions historically have negotiated with
management—defined-benefit plans—encourages long job tenure because its benefit formula
typically is based on a combination of peak-years’ earnings and years of service.
Unionization probably also explains, in part, why 50.4% of employees in the transportation and
warehousing industry (e.g., railroads and airlines) and 49.3% of employees in the 12 17
manufacturing industries combined are members of the baby-boom generation. (See column 2
of Table 2.) In addition, the baby-boom dependent manufacturing industries did much of their
hiring many years ago and have grown their workforces little, if at all, since then. As an example,
consider transportation equipment manufacturing: When the first members of the baby-boom
generation were born in 1946, the industry employed 1.2 million production and nonsupervisory
16 Arlene Dohm, “Gauging the Labor Force Effects of Retiring Baby-Boomers,” Monthly Labor Review, July 2000, p.
20. (Hereafter referred to as Dohm, Gauging the Labor Force Effects of Retiring Baby-Boomers.)
17 The unionization rate in transportation and warehousing was 31.9% in 2005, according to CRS estimates derived
from CPS data. A still slightly above-average share of manufacturing workers were union members in 2005 (13.0%),
following a steady decline in the unionization rate from more than 30% during the 1970s, when some baby-boomers
were deciding whether to follow in the footsteps of their factory-worker parents. Data on trends in union membership
can be found in Barry T. Hirsch and David A. Macpherson, Union Membership and Earnings Data Book, Washington,
DC: Bureau of National Affairs, 2007.
workers; it was an abundant source of jobs for young workers during the next two decades, but
since factory employment peaked at 2.1 million in 1968, many more workers have been 18
permanently let go than have been hired. The order in which unionized employees usually are
laid off—namely, in an inverse relationship to seniority (last-hired, first-fired)—has served to
reinforce the marked presence of baby-boomers on these manufacturers’ payrolls. So, too, has
manufacturing’s image reportedly dissuaded younger persons from considering the field when 19
making career decisions.
More than three out of every 10 persons employed by federal, state, and local governments were
union members in 2005, despite variability across jurisdictions in whether and which employees 20
(e.g., education and public safety) can be organized. Variability also exists in the scope of
negotiable subjects, with all levels of government often excluding leave and benefit policies from 21
the collective bargaining process. In these instances, legislators have passed laws that prescribe
human resources policies or the precepts that underlie them. With regard to retirement benefits,
elected officials usually have provided defined-benefit pensions to public employees; as noted
above, traditional pensions encourage lengthy job tenure and hence, older workforces. Almost all
full-time state and local government workers (including teachers at public elementary, secondary,
and postsecondary institutions) were covered by defined-benefit plans in 1994, which enable
them to retire with unreduced benefits at age 55 or younger and typically after 30 years of 22
tenure. All federal employees also are eligible for a defined-benefit pension plan. Like their
state and local counterparts,
“[m]any federal employees become eligible to retire at age 55 with 30 years of service, and 23
the average retirement age was 60.4 in 2004, according to OPM data.”
A little over one-half of public employees (excluding school personnel) and 48.7% of workers in
the (public and private) educational services industry were baby-boomers in 2005, as shown in
column 2 of Table 2. But in that year, just 20%-25% of baby-boom employees might have been 24
retirement-eligible, based on their age (i.e., at least 55 years old). Going forward, then,
retirements could rise considerably in the public administration and educational services
industries as many more of these employees reach the ages associated with pension eligibility.
Yet the impact of baby-boomers’ withdrawal from the labor force can be expected to differ across
industries, depending on their future employment trends. Those industries that reduce the size of
their workforces will not need to fill every vacancy. A number of baby-boom dependent industries
in the goods-producing sector are projected to employ fewer workers in 2016 than they did in
18 According to the BLS Current Employment Survey (CES), production worker employment in the transportation
equipment industry was 1.3 million in 2005. (There is a break in data consistency starting in 2003, when the CES
switched from the Standard Industrial Classification to the North American Industrial Classification system.)
19 See the U.S. Department of Labor, Employment and Training Administration, Advanced Manufacturing Industry,
which is available at http://www.doleta.gov/BRG/pdf/Advanced%20Manufacturing%20Report%2011.1.05.pdf.
20 The unionization rate in public administration in 2005 was 31.4%, according to CRS estimates derived from CPS
data. It was 34.0% in educational services (which include but are not limited to public elementary, secondary, and
21 Morris A. Horowitz, Collective Bargaining in the Public Sector, NY: Lexington Books, 1994.
22 U.S. Bureau of Labor Statistics, Employee Benefits in State and Local Governments, 1994,” DC: U.S. Govt. Print.
23 Stephen Barr, “Federal Diary,” The Washington Post, July 11, 2006, p. D4.
24 Calculated by CRS from 2005 CPS data.
2006: mining; manufacturing; and forestry, fishing, and hunting.25 The only baby-boom
dependent industry in the service-producing sector projected to experience declining employment
is utilities. However, even industries in which total employment is projected to decrease might
need to replace employees who retire from particular occupations. In other words, industries with
declining aggregate employment (e.g., chemical and transportation equipment manufacturers) 26
may, at a minimum, maintain employment levels in certain occupations (e.g., engineers).
Table 2. Baby-Boom Dependent Industries by Selected Baby-Boom Dependent
Baby-Boom Dependent Industries Baby-Boomers as a Share of Distribution of Baby-
by Baby-Boom Dependent Total Employment, by Industry Boomers Within Industries
Occupationsa and Occupationb by Occupationc
Forestry, fishing, and hunting industry 52.3 —
Farming, fishing, and forestry 52.0 28.5
Mining industry 50.5 —
Manufacturing industryd 49.3
Management occupations 59.3 7.6
Business and financial operations 49.8 1.7
Architecture and engineering 50.4 3.9
Sales and related occupations 49.4 1.7
Office and administrative support 48.7 4.8
Installation, maintenance, and repair 54.7 2.6
Production occupations 47.3 19.5
Wholesale trade industry 44.9 —
Management occupations 52.8 4.8
Sales and related occupations 49.8 18.2
Transportation and warehousing industry 50.4 —
Management occupations 55.6 3.9
Office and administrative support 54.2 13.8
Installation, maintenance, and repair 55.5 3.1
Transportation and material moving 47.6 23.8
25 Eric B. Figueroa and Rose A. Woods, “Industry Output and Employment Projections to 2016,” Monthly Labor
Review, November 2007.
26 BLS, National Matrix, Employment by Industry, Occupation, and Percent Distribution, 2006 and Projected to 2016,
available at the BLS website http://stats.bls.gov. (Hereafter referred to as BLS, National Matrix.)
Baby-Boom Dependent Industries Baby-Boomers as a Share of Distribution of Baby-
by Baby-Boom Dependent aTotal Employment, by Industry bBoomers Within Industries c
Occupations and Occupation by Occupation
Utilities industry 59.8 —
Management occupations 73.0 7.8
Office and administrative support 52.8 9.8
Construction and extraction 50.9 5.5
Installation, maintenance, and repair 60.4 9.2
Production occupations 63.0 11.3
Insurance industry 47.7 —
Management occupations 55.3 5.0
Business and financial operations 48.0 11.3
Sales and related occupations 48.9 13.4
Real estate industry 44.8 —
Management occupations 45.6 12.2
Business and financial operations 55.4 3.0
Sales and related occupations 46.3 16.8
Educational services industry 48.7 —
Management occupations 57.6 4.4
Business and financial operations 51.3 0.7
Community and social service 57.2 1.3
Education, training, and library 47.6 27.1
Health practitioner and technical 53.2 0.9
Food preparation and serving 56.1 1.8
Building and grounds cleaning and 59.8 2.7
Office and administrative support 47.8 4.5
Installation, maintenance, and repair 52.3 0.6
Hospital industry 47.9 —
Management occupations 62.4 3.6
Health care practitioner and 48.3 24.3
Baby-Boom Dependent Industries Baby-Boomers as a Share of Distribution of Baby-
by Baby-Boom Dependent aTotal Employment, by Industry bBoomers Within Industries c
Occupations and Occupation by Occupation
Building and grounds cleaning and 52.6 1.9
Office and administrative support 47.3 7.3
Health care services (except hospitals) 45.4 —
Management occupations 58.2 3.3
Life, physical, and social service 51.5 0.8
Health care practitioner and 50.9 16.2
Membership associations and 46.8 —
Management occupations 52.2 7.0
Community and social service 48.8 16.2
Office and administrative support 48.4 9.4
Public administration industry 51.8 —
Management occupations 63.9 5.9
Business and financial operations 56.2 4.5
Computer and mathematical 55.5 1.9
Architecture and engineering 56.4 1.5
Life, physical, and social service 52.9 1.7
Community and social service 49.2 2.5
Legal occupations 53.2 2.1
Health care practitioner and 50.6 1.5
Office and administrative support 54.1 11.0
Construction and extraction 68.7 1.1
Installation, maintenance, and repair 57.8 1.3
Source: CRS estimates from 2005 Current Population Survey data.
Note: Only occupations within each industry that employed at least 60,000 baby-boomers are included.
a. Baby-boom dependent industries and baby-boom dependent occupations are those in which the share of
41-to 59-year-olds is significantly greater than average (i.e., 42.1%). In 2005, baby-boomers were between
41 and 59 years of age.
b. The column displays the proportions of all workers in an industry who are between 41 and 59 years old and
the proportions of the industry’s workers in an occupation who are baby-boomers. For example, baby-
boomers comprise 44.9% of all workers in the wholesale trade industry and baby-boomers comprise 52.8%
of the industry’s managers.
c. The column displays the proportions of industry employment accounted for by 41-to 59-year-olds working
in particular occupations. For example, baby-boomer managers represent 4.8% of all workers in the
wholesale trade industry.
d. The 12 manufacturing industries are textile, apparel, and leather manufacturing; paper and printing;
peroleum and coal products; chemical manufacturing; plastics and rubber products; nonmetallic mineral
product manufacturing; primary metal and fabricated metal products; machinery manufacturing; computer
and electronic products; electrical equipment, appliance, and component manufacturing; transportation
equipment manufacturing; and miscellaneous manufacturing.
Almost all baby-boom dependent industries have staffed their management ranks with substantial
shares of baby-boomers, as shown in column 2 of Table 2. In fact, 41-to 59-year-olds accounted 27
for a significant portion of managers economy-wide in 2005, at 52.8%, on average. If BLS
projections of the creation of almost 1.6 million new management positions between 2006 and
could be widespread.
Whether it would be difficult to replace retired managers is another matter. One case study of a
large manufacturing firm estimated that increased retirements among senior management would
result in an almost imperceptible decrease in job tenure and slightly faster promotions from the
ranks one step down the corporate ladder, if all replacements were internal. “This is true for most
organizations, and the reason is because in a typical pyramidal-shaped organizational chart, the 29
levels below have many more incumbents than those above.” There is anecdotal evidence, as
well, of baby-boomers who survived corporate restructuring (which pared the number of
executive positions) not being in a hurry to retire. According to a survey of senior-level managers, 30
44% planned to continue working past age 64. The phenomenon of older workers failing to
make way for others to advance is referred to as the “gray ceiling,” and it seemingly extends
beyond management occupations (to lawyers, for example).
Many of the baby-boom dependent industries also rely heavily on 41-to 59-year-olds to fill office
and administrative support jobs, as shown in column 2 of Table 2. The 12 manufacturing
industries, mining, and utilities, for example, are projected to employ fewer office and 31
administrative support personnel over the 2006-2016 period. These industries consequently
27 CRS estimates derived from CPS data.
28 Arlene Dohm and Lynn Shniper, “Occupational Employment Projections to 2016,” Monthly Labor Review,
29 Peter Cappelli, “Will There Really Be a Labor Shortage?,” Organizational Dynamics, vol. 32, no. 3, p. 226.
(Hereafter referred to as Cappelli, Will There Really Be a Labor Shortage?.)
30 Anne Fisher, “Are You Stuck in Middle Management Hell?” Fortune, August 9, 2006.
31 BLS, National Matrix.
could utilize the retirement of baby-boomers as the least painful way of coping with reduced
Other occupational groups with a very high incidence of baby-boomers appear to be more
industry-specific. For example, the retirement of baby-boomers from production jobs (e.g.,
machinists) could create difficulties for manufacturers. Not only did baby-boomers comprise
almost one-half of production employment in baby-boom dependent manufacturing industries in
of the industries’ workforce. (See columns 2 and 3 in Table 2.) Although manufacturers’ demand
for production workers generally is projected to decrease between 2006 and 2016, several of the
baby-boom dependent manufacturing industries could increase employment in specific 32
occupations (e.g., welding, soldering, and brazing workers).
Much the same can be said about transportation and material moving occupations (e.g., drivers
and stock movers) in the transportation and warehousing industry. Baby-boomers made up nearly
one-half of transportation and material moving workers in the industry in 2005, and 41-to 59-
year-olds in the occupational group accounted for close to one-fourth of the industries’ workforce.
(See columns 2 and 3 of Table 2.) In this case, the industry is projected to add 294,000 workers in
transportation and material moving occupations over the 2006-2016 period, with much of the job 33
growth accounted for by motor vehicle operators (e.g., heavy and tractor-trailer truck drivers).
Similarly, the retirement of baby-boomers from health care practitioner and other related
technical occupations (e.g., physicians, nurses, therapists, and health technologists) could pose
supply problems for the health care services industry. About one-half of the individuals employed
in this occupational group by hospitals and other health care services establishments were aged
41-59 in 2005. (See column 2 of Table 2.) These baby-boomers represented 24.3% of total
employment at hospitals and 16.2% of total employment at other health care services enterprises
(e.g., nursing and residential care facilities), as shown in column 3 of the table. In addition, the
health care services industry employed the majority of persons working as health care
practitioners and in related technical occupations in 2006, and the industry is projected to increase 34
employment in these occupations by almost 1.1 million between 2006 and 2016.
For the same reasons, the retirement of baby-boomers from educational, training, and library
occupations could cause difficulties for the educational services industry (public and private) in
particular. Baby-boomers in 2005 comprised 47.6% of the industry’s employment in the
occupational group, of which elementary and secondary school teachers are a large part. These
baby-boomers also are important to the functioning of the industry, accounting for more than one-
fourth of its total employment. (See columns 2 and 3 of Table 2.) Moreover, state and local
government educational agencies and private providers of educational services are projected to
increase their employment of educational, training, and library workers by almost one million 35
between 2006 and 2016. Speaking more generally, the retirement of baby-boomers could have a
substantial effect on the educational services industry because of its large number of baby-boom
Public administration also appears to have many baby-boom dependent occupations. “[T]he wide
variety of jobs and differing growth among the three branches of government, with employment
projected to decline in Federal government and to grow in State and local government,” makes it 36
difficult to gauge the impact of baby-boomer retirements on the industry, however.
Thus, many industries throughout the economy are very dependent on baby-boom workers and
seemingly face the prospect of tightening labor market conditions as these individuals move
toward the typical retirement ages. Employers with older workforces that seek not only to replace
all baby-boomers exiting occupations critical to their operations, but also to increase employment
in those fields, could face especially intense competition for labor in the short run.
An actual shortage of labor is unlikely in the long run, however, because businesses can be
expected to raise wages, thereby
• prompting some pension-eligible baby-boomers to continue working,
• enticing those outside the labor force (e.g., discouraged workers)37 to enter, or 38
those employed part-time to increase their work hours,
• encouraging individuals qualified for jobs that are in particularly high demand,
but who are employed in other fields, to change positions, and
• motivating youngsters attending school and unemployed persons, among others,
to prepare for these now more lucrative occupations.
Admittedly, these accommodations to the new labor market realities could take some time to
occur. The adjustment period could be prolonged if companies are slow to make non-wage
changes as well, such as relaxing hiring standards or providing training to persons who, but for
the tight labor market, would not have been hired (e.g., high school dropouts) or retained (e.g.,
employees with outdated skills). In addition, firms will vary in their ability to alter compensation
and other human resources policies, making them unequal competitors in their attempt to attract
and retain an adequate number of workers.
36 Dohm, Gauging the Labor Force Effects of Retiring Baby-Boomers, p. 24.
37 There were almost 7.1 million persons in the labor force who lacked jobs in 2007, according to BLS data. Only
workers who have actively sought employment in the four-week period before the monthly CPS is conducted are
considered to be unemployed. Unemployment data thus understate the degree of slackness in the labor market partly
because they do not include discouraged workers, who numbered 369,000 in 2007. Discouraged workers are
individuals who want a job and looked for one within a year’s time but are not currently searching because they believe
no jobs are available or none for which they are qualified.
38 There were 24.2 million persons at work in 2007 on part-time schedules (i.e., less than 35 hours a week), according
to BLS data. Most (19.8 million, or 81.8%) chose to work short schedules because they were in school or had family
obligations, for example. The remainder were involuntarily employed part-time—that is, they would have preferred to
work longer hours.
An underlying assumption of the labor shortage scenario is that, in order for the U.S. economy to
continue growing, companies must have more workers on their payrolls in the future than at
present. Proponents of this viewpoint essentially are arguing that the rate of economic growth is
closely and directly linked to the pace of labor force growth. The U.S. economy generally has
been able to expand faster than the labor supply, however, by more efficiently utilizing the
available pool of workers. Former Federal Reserve Chairman Alan Greenspan noted that
An expansion of labor-force participation by immigrants and the healthy elderly offers some
offset to an aging population. However, it is heightened growth of output per worker that 39
presents the greatest potential to boost the growth of gross domestic product.
Confronted with a bidding war for relatively scarce workers, businesses could well try to increase
productivity through substitution of less expensive capital for labor and initiation of
organizational and technological innovations. Indeed, a good deal of empirical research indicates
that past slowdowns in labor force growth have been accompanied by acceleration in productivity 40
growth. This historical relationship provides some optimism for future increases in the
productivity growth rate partly offsetting the diminishing pace of labor force growth in coming
There are factors in addition to the rate of increase in the size of the workforce that affect the
growth rate of labor productivity. A key variable is the quality of labor—that is, the amount of
knowledge embodied in a nation’s workers. One analysis tentatively estimated that, while
business investment in traditional kinds of capital (e.g., expenditures on plant and equipment)
might have accounted for a little more than 27% of the growth in output per hour worked between
1995 and 2003, business investment in intangible forms of capital (e.g., expenditures on
employee training) and changes in labor composition (e.g., educational attainment) might have 41
accounted for 38% of the increase in labor productivity over the period.
It has been suggested that the human capital characteristics of recent migrants to the United States
and their descendants might attenuate the historically inverse relationship between labor force and
productivity growth, however. The United States has been experiencing a shift in the countries of
origin of immigrants, from European toward Mexico and other Latin American countries.
Because Latin American immigrants generally have completed fewer years of school than
European immigrants, the change in country mix has lowered the average educational attainment
of recent immigrants. The impact this will have on the human capital possessed by future
members of the U.S. labor force depends of such factors as trends in source countries’ educational
attainment and the rate of convergence in years of schooling completed by immigrants’
descendants and the native-born population. Although there have been marked gains in high
school completion among recent cohorts of Mexican migrants to the United States, the wide gap
39 Testimony of Federal Reserve Chairman Alan Greenspan before the Special Committee on Aging, U.S. Senate,
Hearing on Aging Global Population, February 27, 2003, available at http://www.federalreserve.gov/boarddocs/
40 Jane Sneddon Little and Robert K. Triest, “The Impact of Demographic Change on U.S. Labor Markets,” New
England Economic Review, first quarter 2002, p. 56-57. (Hereafter referred to as Little and Triest, The Impact of
Demographic Change on U.S. Labor Markets.)
41 Carol Corrado, Charles Hulten, and Daniel Sichel, “Intangible Capital and Economic Growth,” Finance and
Economics Discussion Series Working Paper, Federal Reserve Board, April 2006.
in educational attainment between native-born and Mexican workers is likely to persist for quite
some time. Years of school completed by U.S.-born Hispanics (i.e., second-and subsequent-
generation Hispanics) also are expected to remain well below the U.S. average. These findings
led Little and Triest to surmise that the average level of educational attainment among U.S.
workers could be dampened as a result of the labor force’s increasingly Hispanic composition, 42
unless the educational status of Hispanic youth changes dramatically.
In contrast, Census Bureau staff who developed projections of educational attainment based upon
alternative assumptions—continued immigration and no immigration—found the net impact of
immigrants on overall schooling levels in the future to be indeterminate. The counterfactual case
(zero immigration) showed an increase of a few percentage points in the rate of high school
completion, while the impact on college completion was uncertain. The continued immigration
case showed little difference in future educational attainment. Because still other projections by
ethnicity revealed that all groups could have rising levels of schooling, Day and Bauman
surmised “that changes in ethnic composition [of the U.S. population toward Hispanics, for 43
example] do not suppress educational attainment to the extent some observers have feared.”
Some analysts are not sanguine about the economy’s ability to achieve rates of productivity
growth sufficient to fully compensate for the slowdown in labor force growth. Nyce and Schieber
projected labor supply, based on continuation of current patterns of labor force participation by
age, and labor demand over the 2000-2010 period under four scenarios of productivity growth:
1.5% annually, which was the average rate of increase over the past three decades; 1.75% and
2.0% annually, which mark the range of increases in labor productivity in the past decade; and
2.23% annually, which is a rate last surpassed in the 1950s and 1960s but not again attained for
any long period thereafter. They estimated that the United States could be faced with a shortfall of
labor unless output per hour worked grows by 2.23% for a sustained period of time or patterns of
labor force participation change—for example, if more members of the population join the labor 44
force and current workers retire later.
Another assumption underlying the labor shortage scenario is that members of the baby-boom
generation will sharply curtail their involvement in the labor force once in their 60s. Surveys of 45
boomers suggest that many intend to work during the typical retirement ages, however.
The labor force participation rate of older workers (55 years and over) actually began increasing 46
in the mid-1980s. By 2006, the group’s participation in the labor force had risen significantly to
42 Little and Triest, The Impact of Demographic Change on U.S. Labor Markets.
43 Jennifer Cheeseman Day and Kurt J. Bauman, “Have We Reached the Top? Educational Attainment Projections of
the U.S. Population,” Census Bureau Working Paper Series, no. 43, May 2000, p. 13.
44 Steven A. Nyce and Sylvester J. Schieber, “The Decade of the Employee: The Workforce Environment in the
Coming Decade,” Benefits Quarterly, first quarter 2002.
45 For summaries of findings from various surveys, see Sara E. Rix, Aging and Work—A View from the United States,
Washington, DC: AARP, February 2004.
46 Riccardo DiCecio, Kristie M. Engemann, Michael T. Owyang, and Christopher H. Wheeler, “Changing Trends in the
Labor Force: A Survey,” Federal Reserve Bank of St. Louis Review, January/February 2008.
38.0%. It is anticipated that this strong upward trend will continue going forward: in 2016, when
baby-boomers will be between 52 and 70 years old, the BLS projects that the labor force 47
participation rate of older workers could reach 42.8%. In light of the large size of the baby-
boom population, such an increase in the percentage of persons continuing to work at older ages
would greatly affect the supply of labor.
Many variables have come together to spur the ongoing increase in labor force participation
among older workers. Improvement in the population’s health has increased the ability of
individuals to work at older ages, should they desire. The decrease in physically demanding jobs 48
operates in the same direction. The life span of individuals has lengthened as well, which could
make the extension of one’s years in the labor force a financial necessity—particularly for those
with limited savings and retirement benefits. The tendency of employers to eliminate health
benefits coverage for retirees also could be prompting older workers to remain in the labor force, 49
at least until they qualify for Medicare. So, too, could the movement of employers away from
traditional (defined-benefit) pensions to defined-contribution retirement plans. The latter, which
employers began to offer in the 1980s after section 401(k) was inserted in the Internal Revenue 50
Code (IRC), are age-neutral and do not pay out a guaranteed level of benefits. One empirical
analysis found that most of the increase between 1992 and 2004 in the intention of baby-boomers
to continue working after age 62 was due to decreased rates of employer-provided retiree health
benefits, higher levels of educational attainment among workers, and reduced rates of coverage 51
under traditional pension plans.
In addition to changes in the IRC, Congress has enacted and amended other laws over the years
that encourage older workers to remain engaged in the labor force and remove obstacles to their
continued participation. Several such changes were made to the public pension system, including
gradually raising from 65 the age at which workers can receive full retirement benefits, increasing
the reduction in benefits for those who retire between 62 and the full retirement age, and
enhancing the delayed retirement credit for those who forgo benefits receipt until after they have 52
attained full retirement age. Most recently, Congress loosened the earnings test for employed
beneficiaries between 62 and the full retirement age and eliminated it for those at or above the 53
full retirement age. If policymakers become convinced that a labor shortage is imminent, they
might consider additional modifications of the public pension system, such as further relaxing or
eliminating the earnings test for workers between 62 years old and the full retirement age. The
results of empirical research are mixed, however, on whether removal of the earnings test for 54
employed beneficiaries at or above the full retirement age has increased the labor supply.
47 Toossi, Labor Force Projections to 2016.
48 Richard W. Johnson, “Trends in Job Demands Among Older Workers, 1992-2002,” Monthly Labor Review, July
49 The Urban Institute, Work and Retirement: Facts and Figures, August 2006.
50 Leora Friedberg, “The Recent Trend Toward Later Retirement,” Center for Retirement Research at Boston College,
51 Gordon B.T. Mermin, Richard W. Johnson and Dan P. Murphy, “Why Do Boomers Plan to Work Longer?”, The
Journals of Gerontology, September 2007.
52 For additional information, see CRS Report RL30629, Older Workers: Employment and Retirement Trends, by
Patrick Purcell. (Hereafter referred to as CRS Report RL30629, Older Workers.)
53 The earnings test limits the amount that can be earned without reduction of Social Security retirement benefits, thus
potentially curbing a person’s hours of work or participation in the labor force.
54 For additional information, see CRS Report RL32757, Unemployment and Older Workers, by Julie M. Whittaker.
Some regard federal policies that ban age-based discrimination in the workplace and virtually
eliminate mandatory retirement to be among the leading reasons for the increase in labor force 55
participation among older members of the population. When the Age Discrimination in
Employment Act of 1967 (ADEA) was passed, it barred employers from discriminating against
people between 40 and 65 years old on the basis of age. Thus, firms still were permitted to
include involuntary retirement clauses in their pension plans as long as they were not applied to
persons under age 65. In 1978, the ADEA was amended to protect individuals up to 70 years old
from workplace discrimination; the age restriction was removed by amendment of the ADEA in
Nonetheless, it appears that older workers who lose long-held jobs have limited reemployment
opportunities due, perhaps, to age-based hiring discrimination and lawful considerations of 57
employers. Individuals who willingly retire from their career jobs but who would like to
continue working for another company on a part-time basis, for example, could face similar
employer reluctance to hire them.
Legal statutes, such as the Employee Retirement Income Security Act (ERISA), were cited as an
obstacle by almost 12% of companies that consider their aging workforces an issue that needs to 58
be dealt with. Provisions in ERISA and the IRC arguably dampen employer demand for older
workers who would prefer to phase into retirement rather than fully withdraw from the labor
force. Currently, a company can only retain older employees and distribute pension benefits to
them if they have reached the plan’s normal retirement age which, by law, cannot be above age
65. An employer can make pension distributions to employees who have reached the plan’s early
retirement age (e.g., age 62) only after they leave the firm. Thus, a business cannot compensate
employees between 62 and 65 years old who would like to continue at the firm, but work fewer
hours or weeks, through a combination of reduced wages and partial pension distributions.
Companies have asserted that amending the law to permit in-service pension payments would
make them more willing to provide phased-retirement arrangements. However, the net impact of
allowing in-service distributions at the early retirement age on labor force participation and hours 59
worked among older employees is unknown.
Another reason suggested for employers being reticent about hiring older workers is that the 60
group is thought to be comparatively expensive to cover under health insurance plans.
Companies that provide health benefits must offer all employees, including those at least 65 years
old who are eligible for Medicare, the same plan. If newly hired older workers accept employer-
sponsored health benefits, Congress requires that Medicare be the secondary payer. Firms with
55 Toossi, Labor Force Projections to 2014.
56 William J. Wiatrowski, “Changing Retirement Age: Ups and Downs,” Monthly Labor Review, April 2001.
57 For additional information, see CRS Report RL33054, Older Displaced Workers in the Context of an Aging and
Slowly Growing Population, by Linda Levine.
58 Ernst & Young LLP Human Capital Practice, The Aging of the U.S. Workforce: Employer Challenges and
Responses, January 2006.
59 Although an employer is permitted legally to rehire its own early retirees on a part-time or temporary basis, or as
contractors, this approach is risky for both parties because neither is obligated to resume the employment relationship.
See CRS Report RL30629, Older Workers: Employment and Retirement Trends, which also addresses in-service
distributions from defined-contribution retirement plans.
60 Rudolph G. Penner, Incentives for Older Workers to Remain in the Workforce, posted December 12, 2005 at
health benefit packages might be more inclined to hire Medicare-eligible job applicants were their
own plans instead designated the secondary payer. While this policy change might raise employer
demand for older workers seeking new career jobs or bridge-to-retirement jobs, it also would 61
increase the costs of the Medicare program.
However, the majority of U.S. companies do not appear to have yet focused on the implications
of an aging labor force. Human resources (hr) practitioners who are cognizant of the importance
of recruiting and retaining baby-boom employees have urged companies to reexamine and change
their attitudes toward older workers as they did, with a lag, when women began entering the labor 62
force in large numbers during the 1970s. According to a survey of hr staff, some 40% reported
that their organizations were just becoming aware of the possibility of a worker shortage
associated with retirement of baby-boom employees and a similar share indicated that they were
just at the start of reviewing their policies and practices accordingly. As of 2005, only 11% had 63
made changes to prepare for a potential labor shortage. The results of a survey released in 2007
indicate that only 26% of employers had analyzed the age makeup of their workforces and only
34% had projected retirement rates of their employees. Accordingly, 35% of employers had not
developed “strategies to encourage late-career employees to work past the normal retirement 64
age.” Another survey released in 2007 finds that 29% of employers believe the aging of the
workforce is of little or no significance to them. The results differ by industry, however, with
industries having comparatively older workforces (e.g., health care providers) regarding the issue
as more significant than industries with younger employees (e.g., high technology businesses).
These industry differences are not surprising “when learning that the primary reason (53 percent)
respondents indicated that this is not an issue is that their workforces will not be eligible for 65
retirement within the next five to ten years.”
Proponents of the labor shortage viewpoint usually look just at the very different size of two
groups, namely, the baby-boom and baby-bust generations. The much smaller cohort that
immediately followed the baby-boomers into the workforce is not the only source of
replacements for retirees, however.
The baby-boom produced numerous offspring, who have been labeled the echo-boom generation.
Variously defined as having been born starting during the mid-to-late 1970s, and ending
sometime during the mid-to-late 1990s, the echo-boom—at about 72 million—approaches the 66
size of its parents’ generation. The oldest members of the echo-boom joined the labor force
during the 1990s, and were responsible for the turnaround in the size of the youth labor force over
61 For more information, see CRS Report RL33587, Medicare Secondary Payer: Coordination of Benefits, by Hinda
62 Diane Piktialis and Hal Morgan, “The Aging of the U.S. Workforce and Implications for Employers,” Compensation
and Benefits Review, January/February 2003, vol. 35, no. 1.
63 Jessica Collison, 2005 Future of the U.S. Labor Pool, Alexandria, VA: Society for Human Resource Management,
64 The Center on Aging & Work at Boston College, The National Study Report: Phase II of the National Study of
Business Strategy and Workforce Development, Research Highlight 04, March 2007, p. 17.
65 Corporate Voices for Working Families, Buck Consultants, and WorldatWork, The Real Talent Debate: Will Aging
Boomers Deplete the Workforce?, 2007.
66 Hartig, Generation Gaps.
the 1997-2007 period shown in Table 1. Members of the echo-boom started to turn 25 years old
and enter the prime work-age group (25-54)—with its high rates of labor force participation—
during the early years of the current decade, just when their parents began to leave the group.
Rather than an actual shortage of labor, some observers thus have suggested that the labor market 67
may develop “an experience problem.” Employers might indeed demand that individuals have
many years of work experience to fill certain positions (e.g., managers), but they may not feel the
same way about other jobs. Companies might, for example, prefer to hire recent college graduates
for occupations that have been changed substantially by technology (e.g., skilled blue-collar jobs
in manufacturing) rather than upgrading the skills of experienced middle-aged workers who have,
at most, a high school diploma.
Even if U.S. demographics were such a strong determinant of the supply of labor,
the US is not a closed economy dependent only on domestic labor to produce goods and
services. In the global economy, demographic and labor conditions in other countries affect
the US labor market. Globalization gives US firms access to labor overseas through foreign
direct investment, offshoring, or subcontracting and access to foreign-born labor that
immigrates to the US. The claims of a coming labor shortage must be assessed in a global 68
If globalization were to continue at its current pace, one prominent labor economist expects
US firms to be able to meet potential shortfalls in domestic labor supplies for tradable goods
and services by hiring labor overseas, and to seek immigrant labor to ameliorate potential 69
labor shortages in the production of non-traded goods or services.
The limited availability of U.S. computer programmers to make the technological fixes necessary st
for a smooth transition into the 21 century (i.e., the Y2K crisis) and the ready supply of qualified 70
foreign workers sparked firms to obtain H-1B nonimmigrant professional specialty visas, which 71
allowed them to temporarily bring these individuals into the country. The perceived scarcity of
information technology workers (e.g., computer systems analysts and engineers) in the domestic thth
labor force prompted the 105 and 106 Congresses to raise the H-1B visa cap from FY1999 to thth
FY2003, and the 106 and 108 Congresses to create permanent exemptions from the visa limit. th
In addition, the 107 Congress passed legislation to allow H-1B nonimmigrants to remain beyond
67 Ronald A. Wirtz, “Help Wanted, Again,” Federal Reserve Bank of Minneapolis fedgazette, January 2005, available
68 Richard B. Freeman, “Labor Market Imbalances: Shortages, or Surpluses, or Fish Stories?” Global Imbalances—As
Giants Evolve, Boston Federal Reserve Economic Conference, Chatham, MA, June 14-16, 2006, p. 7-8.
69 Richard B. Freeman, “Is A Great Labor Shortage Coming? Replacement Demand in the Global Economy,” National
Bureau of Economic Research Working Paper Series, Working Paper 12541, September 2006, p. 8.
70 A professional specialty occupation requires the application of highly specialized knowledge, the attainment of at
least a bachelor’s degree (or its equivalent), and the possession of a license or other credential to practice the
occupation if required. Besides computer-related occupations, employers recently have obtained relatively large
numbers of H-1B visas for architects and engineers, administrative specializations, and educators.
71 For additional information, see CRS Report RL31973, Programs Funded by the H-1B Visa Education and Training
Fee, and Labor Market Conditions for Information Technology (IT) Workers, by Linda Levine and Blake Alan
the statutory limit on their time in the country if their employers petition for them to become legal 72
permanent residents (LPRs) of the United States. Employers continue to urge Congress to
reexamine the H-1B visa program to enable them to bring into the country greater numbers of 73
skilled guest workers.
Businesses similarly have turned to temporary and immigrant labor to fill jobs in other
occupations when U.S. workers are deemed to be in short supply (e.g., landscape laborers and
nurses). In view of the ongoing tightening of the U.S. labor market, firms will likely intensify
their pressure on Congress to allow them even greater access to this pool of less skilled labor.
Some Members have expressed support for proposals that would raise ceilings on current visa
categories for guest workers and would expand existing or establish new exemptions from 74
nonimmigrant visa caps. Yet the labor market effects of immigration and the ability to link, in a 75
timely manner, migrant inflows with U.S. labor market conditions remain unsettled issues.
Another means of augmenting the domestic labor supply available to U.S. businesses is
offshoring or offshore outsourcing. Initially, the principal U.S. firms sending work to be
performed in other countries were manufacturers, which meant that most of the jobs first
offshored involved blue-collar occupations such as the industry’s baby-boom dependent
production jobs shown in Table 2. More recently, the widespread availability of technologies that
permit low-cost, good-quality, high-speed transmission of voice and data communications has
enabled companies in the service sector to tap into the supply of white-collar workers residing in
other nations. Although good data on the extent and nature of offshoring are limited, estimates
suggest that some of the baby-boom dependent occupations shown in Table 2 have characteristics
that make their duties amenable to export (e.g., office and administrative support, and business 76
and financial operations).
The core activities of several baby-boom dependent industries could make it difficult for them to
utilize labor living outside U.S. borders (e.g., truck drivers in the transportation industry, sales
agents in the real estate industry, elementary and secondary school teachers in educational
services, and nurses in hospitals). Public sentiment also has prompted policymakers to try to limit
offshoring of activities traditionally performed by employees of baby-boom dependent industries 77
(e.g., public administration).
72 For additional information, see CRS Report RL30493, Immigration: Legislative Issues on Nonimmigrant
Professional Specialty Workers, by Ruth Ellen Wasem. (Hereafter referred to as CRS Report RL30493, Immigration:
Legislative Issues on Nonimmigrant Professional Specialty Workers).
73 See, for example, “Gates Urges Change in H-1B Visa Program as Step to Preserve U.S. Competitiveness,” Daily
Labor Report, March 8, 2007.
74 For additional information, see CRS Report RL32044, Immigration: Policy Considerations Related to Guest Worker
Programs, by Andorra Bruno; and CRS Report RL30493, Immigration: Legislative Issues on Nonimmigrant
Professional Specialty Workers.
75 For additional information, see CRS Report 95-408, Immigration: The Effects on Low-Skilled and High-Skilled
Native-Born Workers, by Linda Levine, Will There Really Be a Labor Shortage?
76 For additional information see CRS Report RL32292, Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity
Among U.S. Workers, by Linda Levine.
77 “Bidders on Pennsylvania Service Contracts To Get Extra Points for Using U.S. Workers,” Daily Labor Report,
September 18, 2006; “Poll Shows Americans Believe Government Should Prevent Jobs From Being Outsourced,”
Daily Labor Report, September 8, 2006; “New Jersey Governor Inks Bill Barring Offshore Outsourcing of State
Contracts,” Daily Labor Report, May 12, 2005; and “Several Governors Issue Executive Orders to Limit Outsourcing
of State Contracts,” Daily Labor Report, April 27, 2004.
Specialist in Labor Economics