Question

Over the next twenty years the number of people who leave their job and become a retiree is expected to dramatically increase (as the Baby Boomer generation turns 65 years old and older). As large numbers of people leave employment and become retirees, we should expect Select one: a the number of people in the labor force to increase b. the number of persons in the civilian working-age population to increase. c. the labor force participation rate to decrease. d. no change in the labor force participation rate,

Answer 1

(a) The number of people in the labor force will rather decrease, not increase. Hence, option (a) is not correct

(b) The number of persons in the civilian working age population will also decrease. Hence, option (b) is also not correct

(c) Labor force participation rate is calculated as, LFPR = (number of people actively participating in the labor force) / (total number of people eligible to participate in the labor force or the adult population)

As explained, the number of retiree after 20 years will dramatically increase. This means that they will be excluded from the group of labor force as well as from the group of eligible people to participate in the labor force. In other words, the numerator and denominator of LFPR will reduce by same magnitude. If the numerator and denominator reduces by same magnitude, the value of the ratio declines. Hence, the labor force participation rate will decrease. For example, consider that today number of people actively participating in the labor force = 200 million and total number of people eligible to participate in the labor force or the adult population = 300 million. Hence, LFPR = 200 million / 300 million = 66.67%. After 20 years if both the values in numerator and denominator reduce by 100 million, LFPR would be 100 million/200 million = 50%. Hence, option (c) seems to be correct.

(d) As explained, LFPR will decline and hence this option also can't be true.