Thursday, March 24, 2011

Someone Finally Notices the Declining Labor Force

From MarketBeat:

The Congressional Budget Office released a report today, projecting labor force participation through 2021. Labor force participation peaked in the late 1990s at around 67% as Baby Boomers reached peak working age and the entrance of women into the work force plateaued. It have been dropping since, with the decline exacerbated substantially by the recession as people dropped out of the labor force. The participation rate stood at 64.2% in February, down from 66% in December 2007 when the recession began. The CBO expects it to decline to 63% by 2021

This is something I noted last month in this post where I commented:

The participation rate increased from a little after 1960 until 2000 and then started to decrease. The question for this decrease is "why?"

There are two fundamental reasons. The first is that women as a percentage of the labor force increased and stagnated over the same time period. As women entered the workforce starting in the early 1960s the labor force participation rate (the percentage of the population either employed or unemployed) increased in sympathy. However, women as a percentage of the labor force plateaued in 2000 and dipped slightly thereafter, leading the labor force and therefore the participation ratio to decline.

Secondly, there is the issue of the baby boomers or "someone born during the demographic birth boom between 1946 and 1964.[9]" Someone born in 1946 would turn 60 in 2006 and be 65 in 2011. As these people have retired, they have left the labor force (they are neither employed or unemployed). Hence, we have the second reason for the decrease in the labor force participation rate -- retiring baby boomers.

This is an incredibly important development -- and one that I don't think people have fully accepted yet.

Here is a link to the CBOs report