If a large number of skilled workers retire at about the same time through early retirements or buyouts, what will happen to the wages of skilled workers, other things being equal?

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Posted on (Answer #1)

In order to understand the answer to this question, you need to do supply and demand analysis.  You need to ask whether this mass exit of skilled workers will affect supply or demand and how it will affect one of those things.  In this case, the mass exit of skilled workers will reduce the supply of such workers and will therefore lead (at least in the short term) to an increase in the wages of workers with the same skills. 

When all of these skilled workers leave their jobs because of early retirement or buyouts, there will be fewer sellers (since workers are selling their labor) in the market for skilled work.  The number of sellers is one of the major non-price determinants of supply.  When there are fewer sellers, the supply of skilled work will decrease.  A decrease in supply leads to a higher price, all other things being equal.  Thus, the mass retirement will raise wages.

This wage increase will be relatively short-term, however.  As wages for those workers rise, new people will seek to enter that profession in order to enjoy higher wages.  Young people will get trained to enter that field.  Workers in related fields will try to gain the skills needed to enter that field.  The supply will increase and wages will return to something like their previous level in the longer term.

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