Labor force participation: what has happened since the peak?

Abstract

Summary of the Main ResultsSince the final quarter of 2007, the labor force participation rate has fallen from 65.9 percent to 62.8 percent in the second quarter of 2014, a decline of 3.1 percentage points. In this report, the Council of Economic Advisers estimates that this 3.1 percentage point decline can be attributed to three main sources:About half of the decline (1.6 percentage point) is due to the aging of the population.Because older individuals participate in the labor force at lower rates than younger workers, the aging of the population exerts downward pressure on the overall labor force participation rate. While older workers today are participating in the labor force at higher rates than older workers of previous generations, there is still a very large drop-off in participation when workers enter their early 60s. About a sixth of the decline in the overall participation rate (0.5 percentage point) is a cyclical decline in line with historical patterns in previous recessions.While the unemployment rate has come down from a peak of 10.0 percent in October 2009 to 6.1 percent in June 2014, it has remained elevated for the last several years. Historically, elevation in the unemployment rate is associated with a decline in labor force participation, as potential workers may decide to defer looking for a job until the economy improves. A portion of the most recent decline in the participation rate reflects this historical pattern, which this report refers to as the "cyclical" effect. About a third of the decline (1.0 percentage point) arises from other factors, which may include trends that pre-date the Great Recession and consequences of the unique severity of the Great Recession.In particular the two elements of this "residual" not explained by the standard factors are: The fact that participation rates conditional on age were declining for many groups in the run-up to 2008, including for prime-age men from the 1950s and for prime-age women from the late 1990s, may also have contributed to the decline in participation. This would have been expected to result in a decline in the participation rate above and beyond the pure aging effect even in the absence of a recession. Note, these effects were partly offset by other pre-existing trends, like a rise in the participation rate for older workers. The severity of the Great Recession, which has resulted in an unusual pattern of a very large share of long-term unemployed relative to total unemployment, may have lowered the participation rate more than would have been expected through normal channels. In fact, we find that a declining participation rate is historically correlated with the elevation of long-term unemployment, suggesting that both issues have a common cause or cause each other.

Challenges and Opportunities of Living and Working Longer

“…These increased participation rates of older Americans are all the more remarkable because they came at a time when participation labor market attachment of younger and middle-aged workers has declined (Hipple 2016). Among Americans aged 25-54, labor force participation rates declined about 4 percent between 2000 and 2015 (from 92 to 88 percent for men, and 77 to 74 percent for women), in stark contrast to the significant increases among older Americans.…”

“…A century-long trend toward earlier retirement came to a halt in the 1980s and now has reversed, although the rate of reversal may now be slowing down (Quinn et al 2011;Munnell 2015a). The rise in labor force participation at older ages is all the more notable because it is occurring while labor force participation among male and female workers aged 25 to 54 has declined steadily since 2000 (Hipple 2016). Older Americans represent a flexible workforce that is willing to change employers, occupations, and work intensity late in life (Johnson et al 2009;Cahill et al 2015a).…”

Some macroeconomic features of Russia as an external environment for activities of companies

“…It was established that the developed innovative potential significantly contributes to the stability of the economy during the crisis; authors suggested ways to stimulate the development of industrial production in the post-crisis period. In articles on labor force (see Hipple, 2016;Aaronson and et al, 2014), the dynamics of the volume and structure of employees of companies was analyzed, it was concluded that in the last 15-16 years there was a decrease in the number of people working in the USA, to a greater extent -teenagers and persons without higher education; forecast of changes in the labor market situation was made. In the paper of E. Bartelsman, J. Haltiwanger, S. Scarpetta (2013) the problems of estimating labor productivity were investigated, a comparative analysis of country differences and industry features was conducted, an appropriate mathematical tool was proposed, and a conclusion was made about the existence of a relationship between the volume of industry production and labor productivity.…”

A Meta-Analysis of the Decline in the Labor Force Participation Rate

“…The LFP rate has remained slightly below 63 percent in the last two years. A closer look at the LFP rate by age, gender, and education reveals that it declined for most of the demographic groups (Hipple 2016).…”