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
3 comments:
There have been many who argued that declines in unemployment would be made tougher when people started to rejoin the labor market.
The CBO report as well some analysis I have done Social Security claims suggests that is not true. What appears to be happening is that the Recession has led many to leave the work force for good.
To your point, I don't this has been widely understood and it is hard to overstate its significance.
I think this contains an error, Hale.
Labor force participation is the number of employed people/(employed + unemployed), counting persons between the ages of 16 and 64. People 65 and over--like retiring baby boomers-- drop out of numerator and denominator and therefore do not affect the ratio.
PW --
The denominator of the the fraction is the civilian, non-institutional population, which is " ... persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces."
However, thanks for asking, because I have continually re-read the definitions as well.
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