Publication Date

10-2009

Abstract

[Excerpt] The Congressional Budget Office (CBO) produces regular reports on the state of the U.S. economy as well as 10-year and long-term projections of the nation’s budget and economic outlook. In those analyses, CBO examines a range of developments that could have short- or longer-term consequences for the budget and the economy. In the decades to come, one such development will be a slowing of the rate of growth of the labor force. That projected slowdown is expected to occur because of lower fertility rates, the leveling off of a sizable increase in women’s labor force participation, and the aging and retirement of large numbers of baby boomers.

Although slower growth in the workforce might affect the U.S. economy in many ways, this background paper focuses on what could happen in just one area: the rate of return paid on assets such as stocks and bonds. A number of theoretical models and simulations suggest that slower growth in the supply of labor could lead to lower rates of return, although that effect could be offset by rising budget deficits, capital outflows, or other factors. A decline in rates of return could have a significant effect on the federal budget through its impact on interest payments. In addition, a shift in the rate of return (and related shifts in wages) would alter the long-term outlook for the Social Security program.

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Suggested Citation
Canis, B. & Platzer, M. D. (2009). How slower growth in the labor force could affect the return on capital. Washington, DC: Author.
http://digitalcommons.ilr.cornell.edu/key_workplace/669

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