The labor force participation rate (LFPR) in the United States has been declining since the late 1990s – so this is a trend
that predates the recession by several years.
You might ask why economists keep close tabs on this number.
The answer is labor force growth is an important indicator of future
economic growth – a decline in the labor force creates a labor supply
constraint. Over the next several years the Bureau of Labor Statistics projects that labor force growth will be due entirely to population
growth and that the labor force participation rate will continue to decline.
During the 1970s and 1980s, the labor force in the U.S.
took off as the baby-boom generation, particularly women, entered the labor
market. However, the demographic, economic and social forces that shaped the
growth and composition of the labor force have changed since the turn of the
century. The LFPR of women, which peaked in 1999 has been on a trend decline.
On top of that, baby boomers are now retiring in large numbers and exiting the
workforce. Also, accelerating
technological change has caused further distortion in the labor markets. Workers who have seen their jobs disappear as a result of technological change may lack the will or ability to retrain and subsequently drop out of the labor force rather than take a low-skill low-wage job.
I separated young
Millennials (aged 16-24) because they show an even steeper decline in labor force participation. Lately, this is
generally attributed to younger people delaying entry into the workforce in
favor of more education as a result of high unemployment among younger people in the aftermath of the recession. But, again this trend predates the recession, so there seems to be something else going on there as well.
Last month 96,000 individuals left the labor force
causing the participation rate to tick down another 0.1 percentage point to
62.7%. Having peaked at 67.1% in the late 1990s, BLS projections show the LFPR
falling to 61.6% by 2022.
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