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The Intergenerational Report (IGR) released by the Department of the Treasury of the Commonwealth of Australia in 2002 highlighted pressures that in the future would threaten the sustainability of the Australian government's budget balance. These pressures result from the growing needs of an aging population and labor shortages that will limit economic growth and taxation revenue. The IGR has become a driving force in planning government policy. The Treasurer has recently said that “the whole economic agenda of the government at the moment is drawn from the IGR.” In response, the Prime Minster and Treasurer have promoted deferred or gradual retirement as part of the solution. However, about 50% of men and 20% of women retire early as a result of ill health, indicating that poor health is potentially a limiter of economic growth. This paper reports lower labor force participation among persons with poorer health and that these persons move out of the labor force at a faster rate as they age. A range of measures suggests some decline in health in the pre-retirement age group (those aged from 40 to 64 years). This indicates that better health may be a facilitator of greater labor force participation in the baby boomer cohort. However, there is evidence that improving economic conditions in Australia leading to low unemployment has created an environment more favorable to the employment of older workers with health problems as there has been a rise in labor force participation in these groups, and measures to prevent chronic disease may further increase the employment prospects. [ABSTRACT FROM AUTHOR]