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The Honolulu Advertiser
Posted on: Monday, February 27, 2006

First of baby boomers exit work force

By Matthew Benjamin
Bloomberg News Service

Ken and Judy Leard, not yet in their 60s, are already finished working.

The Mico, Texas couple began thinking of retirement while they were still in their early 50s. During the last two years, both quit for good.

"We've saved enough that we can make it well into our 90s without running out of money," says Ken Leard, 59, who retired after 27 years at a personal-check maker in nearby San Antonio.

The Leards are among the first of a wave of retirements among the 78-million-strong Baby Boom generation who will shrink the share of the U.S. population available for work, already near a 17-year low as measured by the Labor Department. A tighter labor market will spur inflation or hold down economic growth and may force long-term interest rates higher, economists say.

"This is absolutely key to the economic outlook," says Chris Low, chief economist at FTN Financial in New York. "A lack of labor-force growth will have to take its toll either on inflation or growth. If you're going to grow you need to get bodies from somewhere."

The Labor Department's employment participation rate, the percentage of working-age Americans who are working or looking for jobs, peaked in the late 1990s and since has been stuck at around 66 percent, defying predictions that a growing economy would entice more people to seek jobs.

What matters for the economy is the sheer number of baby boomers who will retire. The participation rate among 55-to- 64 year olds is about 20 percentage points lower than among 45-to-54 year olds, and the generation is adding millions to the over-55 ranks every year.

"For the future, the big thing is the boomers exiting the work force," says Daniel Aaronson, an economist at the Federal Reserve Bank of Chicago who has published several papers on the participation rate.

Ben S. Bernanke, in his first congressional testimony as Fed chairman on Feb. 15, referred to tightness in the labor market as one of the "risks that could add to inflation pressures."

Work-force participation rose steadily for five decades after 1948, when 59 percent of Americans were in the labor force. As women increasingly took jobs outside the home, that level rose, most sharply between 1970 and 1990, when it approached 67 percent. With population growth, that expanded the pool of Americans available for work to 126 million from 82 million.

Beginning with the 2000-2001 recession, the participation rate's increase slowed, then reversed. Fewer women joined the work force, while a long-term decline in the number of working teenagers accelerated.

Now, the decline in work-force participation is about to accelerate as baby boomers reach the age where some will choose early retirement, economists say.