Is A Great Labor Shortage Coming? Replacement Demand in the Global Economy

Richard B. Freeman

NBER Working Paper No. 12541
Issued in September 2006
NBER Program(s):Labor Studies

This paper assesses the claim the the US faces an impending labor shortage due to the impending retirement of baby boomers and slow growth of the US work force, and that the country should orient labor market and educational policies to alleviate this prospective shortage. I find that this analysis is flawed, by making growth of GDP the target of economic policy and by paying inadequate attention to the huge supply of qualified low wage workers in the global economy. My analysis shows that the projections of future demands for skills lack the reliability to guide policies on skill development, and that contrary to the assumption implicit in the shortage analyses, demographic changes have not historically been consistently associated with changes in labor market conditions. I argue that if there is to be a shortage, the country should allow the competitive market to raise labor compensation rather than to adopt policies to keep labor costs low.

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Document Object Identifier (DOI): 10.3386/w12541

Published: “Is A Great Labor Shortage Coming? Replacement Demand in a Global Economy,” in Harry J. Holzer and Demetra Nightingale (eds) Reshaping the American Workforce in a Changing Economy (DC: Urban Institute Press, 2007).

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