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Working Papers

Population Changes and the Economy

Working paper #517
Janice Fanning Madden

Due in part to the baby boom retiring, labor force growth will be slower over the next 20 years than it was for the last 50. This slower labor force growth will allow capital/labor ratios to increase, increasing productivity of the work force. Economic models predict no large shifts, however, in aggregate spending or savings. Baby boomers will have higher rates of housing demand, including both primary and secondary homes, than prior generations as they enter retirement due to their greater income, wealth, and education. Demand for housing will also increase as the echo baby boom enters into the housing market in the next decade. Long-term predictions of the performance of the national economy, especially in response to long-term demographic changes, are not sufficiently reliable to serve as a basis for immediate decisions about strategies for investment in real estate or other asset markets. Rather, the more accurate predictions of near-term national and local economic performance and the near- and medium-term predictions for the age and ethnic composition of local populations provide a sounder basis for developing investment strategies.

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