The Impact of Health and Education on Labor Force Participation in Aging Societies: Projections for the United States and Germany from Dynamic Microsimulations

Abstract

AbstractWe project the labor force in the United States to 2060 and contrast the outcomes with comparative projections for Germany. In both countries, the population will age, but the demographic dynamics are fundamentally different. According to our dynamic microsimulations, the labor force in the U.S. will increase by 17 percent between 2020 and 2060 (about 29 million workers) despite population aging. In contrast, the labor force in Germany will decline by 11 percent (about 4.5 million workers). Our baseline projections indicate that an expansion of education will increase the labor force by about 3 million persons in the United States and about half a million persons in Germany by 2060. In several what-if scenarios, we examine the effects of further expanding education and of removing health barriers on labor force participation. Higher educational attainment among those with currently low education has the largest impact on labor force participation, relative to the additional years of schooling. However, health improvements and the labor market integration of people with health limitations suggest a larger increase in labor force participation rates. Using Sweden as a benchmark, we show that reducing the health participation gap would increase the U.S. labor force by as much as 13 million people in 2060 (+6.8 percent compared to our baseline).