As the United States population ages, employers face the possibility of a sustained retirement of the baby boom generation and a loss of their most experienced and knowledgeable employees. The public sector appears to be even more vulnerable, with an older-than-average workforce as well as a more traditional retirement system that encourages early retirement. As a result, there is a possibility of occupation-specific labor shortages, if not an overall labor shortage, as the baby boomers reach retirement age. For employers, the immediate challenge will be to determine how to employ aging workers by using phased retirement options such as flexible or part time hours and a quality work environment. Employers also face the challenge of a younger and more ethnically and culturally diverse workforce. As an example of this situation, California, although it has a younger population, also faces the demographic certainty of the aging baby boom and a culturally diverse workforce. As the most diverse state ethnically and culturally, California has the opportunity to lead the nation in accomplishing an ongoing transition to a workforce much more diverse than the workforce of the baby boom era. (Contains 21 endnotes.) (KC)