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Baby Boomer Retirements May Create Labor Crunch

The labor supply may experience shortages in coming years as more Baby Boomers retire, according to a study by KPMG. The firm found there is a lack of Generation Y workers to replace those who are expected to retire in the years ahead. That could lead to a lack of consumer spending and a contraction in the tax base.

The retirement of the Baby Boomer generation (born 1946-1961) from the workforce and a lack of Generation Y workers (born 1976-1991) to replace them has already resulted in the contraction of the labor pool in countries such as Japan, with Australia, Canada, China, New Zealand, the United Kingdom, the U.S., much of Western Europe and other nations expected to follow suit in the next decade.

The study predicts that some countries in Africa, Latin America and the Middle East, as well as India, will not face the same labor shortages. Economic migration from areas of labor surplus to areas of labor demand may occur later in the century.

"The rate of consumption and the tax base would increase at a reducing rate in the future," said KPMG Partner Bernard Salt, who wrote the study. "The problem is that the economy gets used to the consumption tax base growing at a certain rate, and when you slow that down, it causes readjustments."

Besides immigration, another solution to the problem could be people working past retirement age, which seems increasingly likely as the economic downturn wreaks havoc with people's retirement savings.

"Boomers are going to make over retirement," Salt predicted. "The first thing they will do is dump retirement. They're never going to retire."

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