Are Aging Baby Boomers Squeezing Young Workers Out of Jobs?

As life expectancy increases and the retirement income system contracts, households face an enormous challenge in ensuring a secure retirement. Working longer is often hailed as the best way to increase retirement incomes. But some suggest that more work by older persons reduces the job opportunities for younger persons. This contention, known as the “lump of labor” theory, is widely accepted in many European countries and has provided an economic rationale for early retirement programs. However, economists in the United States generally reject this theory, arguing that the labor market is dynamic and the economy can adapt to labor force changes. Nevertheless, “crowding out” has received increased media attention in the wake of the Great Recession and, if generally accepted, could impede the trend towards working longer. This brief investigates whether any empirical support exists for the lump of labor theory. The report proceeds as follows. The first section introduces the lump of labor theory and summarizes the existing evidence. The second section describes the data and basic methodology used in the analysis. The third section presents the baseline results, followed by the results of numerous tests of the strength of the findings. The fourth section describes the results of a separate test for the Great Recession. The fifth section identifies the causal relationship between the labor force activity of the old and the young. The final section concludes that there is no evidence that increasing the employment of older persons reduces the job opportunities or wage rates of younger persons.