THE LABOR FORCE PARTICIPATION rate is defined as the percentage of the noninstitutional working-age population (those aged 16 and over) reporting themselves as either working or actively looking for work. This statistic is constructed from data collected as part of the Current Population Survey and published monthly by the Bureau of Labor Statistics (BLS). Its longer-run trend is an important determinant of the supply of workers to the U.S. economy. For much of the past four decades, the participation rate has trended upward, rising from less than 60 percent in the early 1960s to more than 67 percent by the late 1990s. However, after peaking at 67.3 percent in the first quarter of 2000, the participation rate fell steadily to under 66 percent by early 2005 and has edged up only to just above 66 percent since then. As figure 1 shows, such a decline in labor force participation is nearly unprecedented in the postwar experience. Although the upward trend between the mid-1960s and the mid-1990s was occasionally interrupted by relatively brief periods of little change, few episodes of persistent outright decline are evident in the data. Indeed, even after the upward trend from the earlier period is removed (using, for example, a Hodrick-Prescott filter

The probability that an individual participates in the labor force declines precipitously beyond age 50. This feature of labor supply suggests that ongoing shifts in the age distribution of the population will put substantial downward pressure on the aggregate labor force participation rate. However, the aggregate rate is also influenced by trends within age groups. Neglecting to model both within-group influences and shifting population shares will doom any estimate of aggregate labor supply. We develop a model that identifies birth cohorts' propensities to participate, uses these propensities to derive age-specific trends in participation rates, and explicitly incorporates the influence of shifting population shares in estimating aggregate labor force participation.

This paper presents estimates of the impact of Social Security's Delayed Retirement Credit on the employment rates of older men. The credit raises lifetime social security benefit payments for recipients who delay receiving benefits after age 65 and offers a rare and important test of whether labor supply incentives built in to the program can promote work at older ages. The results suggest that the increased incentives raised employment among workers over age 65. In addition, the recent increases in social security's Normal Retirement Age also appear to be pushing up labor supply.

This paper presents estimates of the impact of Social Security's Delayed Retirement Credit on the employment rates of older men. The credit raises lifetime social security benefit payments for recipients who delay receiving benefits after age 65 and offers a rare and important test of whether labor supply incentives built in to the program can promote work at older ages. The results suggest that the increased incentives raised employment among workers over age 65. In addition, the recent increases in social security's Normal Retirement Age also appear to be pushing up labor supply.