U.S. Labor Force: Where Have All the Workers Gone?

IMF Blog, August 7, 2014

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Labor force participation rate stood at 62.9 percent in July 2014.
This represents a 3 percentage point decline since the Great Recession and is the lowest rate since 1978.
Fully one-half of the gains in participation rates between 1960 and 2000 have been reversed in the last six years.
The equivalent of 7.5 million workers have been lost from the U.S. labor force.
The “golden” era was 1960–1990, when participation rates increased from 60 to 66 percent.
Even before the Great Recession, participation had been declining, with a continuation of the fall since the 2001 recession and the bursting of the dotcom bubble.
Long-term unemployed are still higher than at any previous peak since World War II.

Structural changes linked to population aging have been an important part of the downtrend.
Cyclical factors related to the availability of jobs and wage dynamics have also been important, particularly following the Great Recession.
Our study attributes around 50 percent of the decline in participation since the Great Recession to aging.
Cyclical forces account for a further 30–40 percent of the decline since the Great Recession.
The remainder of the post-2007 decline reflects other forces, including:
- A significant decline in youth participation driven mainly by a decline in the number of students who are also working (not primarily by increased college enrollment).
- Rising applications for disability insurance, amplified by demographics (more of the population in the over-50s age group) and an upward spike in applications following the Great Recession; many applicants exited the labor force while applications were pending, including some who were eventually denied benefits.

Using detailed state level data, the analysis suggests that up to one-third of the post-2007 decline in participation rates is reversible.
Over the next few years, a temporary respite is expected with about 2 million workers coming back into the labor market as job prospects improve.
By 2017 participation rates should again start to decline as population aging begins to dominate and more-than-offset the cyclical bounce back.

Economic policies that get the country growing again to strengthen the labor market, raise wages, and bring people back into the labor force.
Labor supply measures to boost potential growth and raise human capital and productivity, including:
- Enhancing training and job search assistance programs.
- Better family benefits, including more affordable childcare, to support continued work by both parents and help reverse the downward trend in female participation.
- Immigration reform that provides greater visa opportunities for high-skilled immigrants to boost the size and productivity of the labor force and likely improve the government’s fiscal position.

Source: U.S. Labor Force: Where Have All the Workers Gone?, Ravi Balakrishnan, August 7, 2014.