Labor Force Participation Rates

The labor force participation rate is the percentage of people in the civilian noninstitutionalized (not in prison or the military) population, aged 16 and older, who are either working or actively seeking work. This rate has been gradually decreasing since the early 2000s, but appears be leveling off around 62.5% (Graph 1). There are two possible explanations for this decline: either the labor force is shrinking due to poor government policy and/or the dwindling effects of the 2008 Recession, or the participation rate is simply growing more slowly than the population as a whole. Based on Graphs 2 and 3, it appears that the latter explanation is most likely.

According to Graph 2, the labor participation rate of people aged 25-54 is relatively constant at around 82%, while that of people aged 55 and up appears to hover around 40%. This indicates that, while there was a slight decline over time, these participation rates are mostly steady and do not decline enough to account for the large drop in overall civilian participation rate. However, as apparent by Graph 3, the population of people not in the labor force who are 65 years and over has grown rapidly in recent years. This trend is likely due to baby boomers, a significant portion of the population, leaving the work force and retiring. Thus, it is safe to assume that a large part of the decline in the civilian participation rate is due to the rapid decrease in baby boomers in the work force, which has been declining faster than the population has been growing. This conclusion is supported by a 2014 report by the Congressional Budget Office, which found that of the 3 percent drop in the labor force participation rate from 2007 to 2013, half (1.5%) of the percentage point drop is due to the aging of the population, while 1% of the drop is from temporary business cycle factors and only .5% is due to policy decisions. It is not hard to imagine this trend continuing into more recent years.

Further, it is likely that the main reason the labor force participation rate was so much higher before the early 2000s is that baby boomers made the population of working people under 65 much greater, so it more than counteracted the declining participation rate of people older than 65. Based on these conclusions, is it safe to assume that we will never reach such high labor force participation rates again unless there is another baby boom?

Graph 1.

Graph 2.

Graph 3.

1 comment to Labor Force Participation Rates

  • ghimirer17

    Labor force participation is a topic that has been discussed a lot in class due to baby boomers reaching retirement age. I’ve wondered what the large retirement rates could mean for the economy, so I appreciate seeing the graphs and numbers to back what we have read and discussed in class. What I found most interesting from observing these graphs is graph #3 where the category “not in labor force” keeps rising as time continues to go by and your question – if we will ever reach as high labor force participation rates again unless another baby boom happens – is a question that has come to my mind as well. More than just whether or not we will have high rates of labor force participation again, I wonder how policies, especially regarding the economy, will shift towards accommodating larger populations going into retirement than before.

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