In the first week of January 1967, American news magazine Time announced that the Person of the Year for 1966 was “The Inheritor,” a generation of men and women aged 25 and under. That year marked the first time the publication chose a demographic rather than a specific individual as its Person of the Year, putting the now widely used term “Baby Boomers” under the spotlight.
While different countries have varying definitions for Baby Boomers, in the United States and other Western countries, those born between 1946 and 1964 are generally referred to as Boomers. Time offered a lengthy cover story on Boomers at the time and described how this generation held different values and attitudes that set them apart from their predecessors. They were depicted as difficult to talk to, restless, and negatively associated with drug use and liberal views on sexuality. Boomers were also regarded as a well-educated generation that grew up in a stable economy.
Once hailed as America’s “assertive and articulate” youth that would “remake the world,” according to Time, Boomers are aging and forming a large elderly population. The youngest Boomers, born in 1964, turned 60 this year and are approaching retirement. The problem is that a Boomer retirement wave is imminent, potentially leading to a sharp decline in the workforce.
Martin Werding, a professor of Social Policy and Public Finance at Ruhr University Bochum and a member of the German Council of Economic Experts, warned that “the Baby Boomer exodus from the labor market doesn’t end there.” In an interview with WEEKLY BIZ, he said, “Their retirement, coupled with the low birthrate of later generations, will continue to limit economic growth potential until 2060,” marking the beginning of the so-called “Baby Boomer retirement shock” era.
The ebb and flow of retirement is a global mega-trend affecting generations born after World War II. According to Pew Research, 10,000 people will turn 65 every day in the U.S. by 2030, dramatically altering the demographic structure as a massive chunk of the population - 71.6 million Boomers - ages. Forbes has described this as the “end of the Baby Boomer workforce” and the arrival of the “silver tsunami.”
Germany is the country that most dramatically demonstrates a decrease in the workforce due to baby boomer retirements in Europe. Presently, Germany appears to have a robust job market facade, recording an annual unemployment rate of 5.7% last year. While this is higher than the 5.0% just before the COVID-19 pandemic in 2019, it is less than half compared to the peak of the 21st century in 2005 (11.7%).
The issue lies in the fact that these numbers are not a result of the German government and industry creating many high-quality jobs. The German economy is stagnating, recording a growth rate of -0.3% last year. International Politics, a German diplomatic journal, pointed out that despite Germany being the largest economic power in Europe, it has been experiencing a recession since 2018, yet hardly any unemployment has occurred. The paper then attributed this paradox to the baby boomer retirees starting to leave the workforce alongside the economic recession in Germany. This means, while a significant number of jobs were left vacant due to the retirement of baby boomers, there are not enough people seeking jobs to fill them, thus maintaining or even decreasing the unemployment rate.
Germany’s working-age population, aged 20-66, decreased from 65.3% in 2017 to 63.8% in 2022, a decline of 1.5 percentage points. Statistisches Bundesamt forecasts a decrease of 4 to 6 million in the working-age population by 2035 compared to 2018. Werding also stated, “Despite recent crises, employment numbers have continued to increase, but there is a high likelihood of a decrease of over 5% annually, with 150,000 to 250,000 fewer people employed each year until 2040.” He added, “Even if we assume that immigration continues to increase and female labor force participation continues to grow as it has over the past 30 years, the situation remains the same.” This decrease in the working-age population is evident in several countries, including France (62.3% in 2018 to 61.5% in 2022).
Baby Boomers, the oldest and most economically active generation, have been the most productive across various fields. Their mass departure from the labor market, known as the “silver tsunami,” poses a significant challenge due to the “decline in productivity.” American geopolitical strategist and population security expert Peter Zeihan writes in his book ‘The End of the World Is Just the Beginning,’ “Baby Boomers are the largest generation, so their departure from the labor market has enormous implications. When you lose that many skilled workers quickly, labor shortages and rising wages are a foregone conclusion.”
Indeed, the mass exodus of baby boomer skilled workers is a reality in many parts of the world. In Japan, France, Italy, and elsewhere, fewer people in their late 20s (25-29 years old) are entering the workforce compared to those reaching retirement age (60-64 years old), leading to a decline in labor productivity per capita. According to the Conference Board, a private U.S. economic research organization, U.S. labor productivity growth per capita has slowed from a 1.8% average (2001-2005) to 1.1% (2006-2010) and further down to 0.7% (2011-2015). In Japan, productivity growth has declined from 1.2% to 0.7% to 0.3% over the same period.
In manufacturing-oriented countries, as baby boomers retire and younger workers take their place, the new workforce does not match the productivity levels of their predecessors. German public broadcaster Deutsche Welle (DW) reported, “More than three-quarters of companies in the automotive industry and more than 70% of companies in the mechanical engineering industry are experiencing severe labor shortages; the shortage of skilled workers is leading to a war for talent.”
The rise in retirements is not just about the “empty chairs” they leave behind; it also creates a “statistical illusion.” The unemployment rate is calculated by considering people actively looking for work but do not currently have a job. However, when workers retire, they are no longer looking for work. They are unemployed but not counted as unemployed.
The phenomenon of statistical illusion is most evident in the United States.
Compared to European countries like Germany, the U.S. has been more significantly impacted by the wave of Baby Boomer retirements. This is mainly due to the fact that a large number of individuals of working age have retired rapidly in recent years. Initially, the U.S. was believed to have enough labor resources, but it has suddenly encountered a labor force cliff.
In the past, American Baby Boomers, due to inadequate retirement planning and a more accessible healthcare environment, have continued to work past the age of 60.
The transition of the U.S. industry from physically laborious factory jobs to office-based positions has played a key role in preserving employment opportunities for older workers. This shift has helped them continue working in a less physically demanding environment, allowing them to remain active in the workforce.
The situation changed in the post-pandemic era. According to the New York Times, the employment rate for individuals aged between 55 to 64, who belong to the youngest Baby Boomer generation, has returned to the pre-pandemic levels.
However, there is a noticeable decline in employment among those aged over 65. This suggests that the economic conditions that have favored Baby Boomers for many years are now changing.
As the aging population increases, countries worldwide are considering options such as expanding employment opportunities for women and older individuals, as well as accepting immigrants to fill the gaps left by retiring Baby Boomers.
The U.S. has a long history of immigration, making it easier to replenish its workforce with foreign labor.
Last year alone, the number of foreign workers in the U.S. increased by 1,257,000. As of March this year, there are 31,114,000 foreign workers in the U.S., up from 27,697,000 in Feb. 2020, marking an increase of over 12%.
The Washington Post reports, “An influx of immigrants could slow the aging of America’s population. Immigrants are generally younger than the native population and have become a major factor in national population growth.”
The problem is that many countries have little experience in accepting immigrants. In situations where it is difficult to immediately resolve low birth rates, countries that have turned to immigration as an alternative to secure labor are now actively considering attracting more immigrants. It is particularly unusual that Italian Prime Minister Giorgia Meloni, from a conservative party known for its exclusivity towards immigrants, has pledged to issue 425,000 work permits to non-EU nationals by 2025. Canada passed Bill C-19 in June 2022, making amendments to the express entry system to allow employment and visa extensions regardless of industry. Germany, which concluded that it must “import” 1.2 million workers from abroad every three years until 2060 to maintain adequate labor, passed an immigration law allowing job hunting in Germany for six months.
Boomers’ unwavering spending, owning half of national assets
Given that baby boomers have accumulated the most wealth among all generations, there is a hopeful outlook for their post-retirement period. According to market researcher Visual Capitalist, American assets last year amounted to about $156 trillion, half of which, or $78.1 trillion, belonged to boomers. This means that one generation almost monopolizes half of various assets, such as private businesses, real estate, stocks, and pensions.
If boomers dive into full consumption after retiring from work, they are expected to become the biggest players in the consumer market. While they were responsible for national production before retirement, they will take on the responsibility for national consumption after retirement. Professor Ronald Lee of the University of California, U.S., said, “Baby boomers, a generation that has accumulated a lot of wealth over their lifetime, have sufficient purchasing power,” and added, “In fact, the retirement of baby boomers, leading to a reduction in the number of workers, could be an opportunity to increase productivity and wages per worker.”
In the United Kingdom, boomers have recently increased their spending sharply, being pinpointed as the “culprit” sustaining inflation. As the international trend of high interest rates continues and interest income increases, boomers have started spending more, and this overconsumption has been pulling prices up. The Guardian reported that boomers started diving into consumption from buying houses, booking flights, hotels, and cruises for holidays, to purchasing golf memberships. Professor Jeon Yeong-soo of Hanyang University’s Department of Global Social Economy stated, “While the quantitative size of the baby boomers is significant, their proportional size is even more crucial.” He added, “As the younger generation shrinks due to low birth rates, the older generation will inevitably increase its share in the total population simply by maintaining its numbers.”
The wealth accumulated by baby boomers is expected to eventually transfer to their children, particularly the millennial generation, according to estimates by financial research firm Cerulli Associates, which predicts a transfer of $72.6 trillion to their heirs by 2045. The heirs, the beneficiaries of this inheritance, are likely to be their children, millennials (born between 1980 and 1996).
This significant intergenerational transfer of wealth is anticipated to reshape millennials’ spending habits. Forbes suggests that by the 2030s, millennials could possess five times more wealth than they do presently, potentially leading to increased consumer spending, investment, and economic growth and potentially bolstering the stock market as funds are directed into investments.
Japan’s experience illustrates how transferring wealth from baby boomers to younger generations can stimulate the economy. “Japan faced a prolonged recession due to difficulties accessing the assets of its aging baby boomer population,” Professor Jeon Young-soo explained, and “Stimulus measures were ineffective because the wealth was predominantly held by elderly individuals and inaccessible for immediate economic circulation.” However, Japan addressed this issue by incentivizing the transfer of wealth to younger generations through tax incentives for educational gifts and promoting systems like testamentary trusts for inheritance planning. This strategy has enabled individuals to utilize funds that would otherwise be tied up in retirement, contributing to Japan’s recent economic resurgence.
