We began the discussion in Chapter 7 with a simple model of an economy depicted in Figure 7-1. The model showed that the level of labor demand in an economy is ultimately determined by two factors: the efficiency with which workers are employed in producing output, and the level of output that employers produce. The amount of output produced by employers is driven by the level of demand for goods and services. Of course, government programs affect aggregate demand, and imports to and exports from other countries are also important. In estimating the amount of labor the OECD economies might need to meet future demand, we can simplify the macroeconomic discussion by focusing on the inputs used in producing GDP. Keeping Figure 7-1 in mind will help in understanding how the analysis unfolds.

In this chapter, we evaluate the probability of the developed economies not having enough workers to satisfy consumer demand for goods and services over the next couple of decades. There are two ways around the projected labor shortfalls. One is to boost productivity high enough to make up for labor shortages. Achieving such high rates of productivity improvement poses its own set of challenges to employers, which we will explore in Chapter 10. The other is to boost workforce participation, either by attracting more workers into the workforce, convincing existing workers to work more hours or delay retirement, or some combination of the two.