Stepping Back into the Labor Force
After falling from an all-time high of 67.3 percent in 2000, the labor force participation rate found a bottom in 2015, and has since stabilized around 63 percent.
Driven primarily by demographic changes and the retirement of the Baby Boom generation, the labor force participation rate – the ratio of the population 16 and older that is working or looking for work – has been in long-term decline (Figure 1). This decline was accelerated by the Great Recession, which pushed some Boomers to retire early, sent countless young people back to school, and discouraged many to quit looking for work all together. However, the exodus of workers appears to be abating. After falling from an all-time high of 67.3 percent in 2000, the labor force participation rate found a bottom in 2015, and has since stabilized around 63 percent. This surprising reversal of trends coincides with solid employment gains, low unemployment and an upward movement in wage growth, which recently rose to the highest-level since 2009 (Figure 2).
Figure 1: The US labor force participation rate declined strongly after the Great Recession but has since leveled out around 63%.
Figure 2: Annual wage growth stalled after the Great Recession, but has made a comeback in the past two years. In February 2019, annual wage growth rose to 3.4% - the highest level since 2009.
The labor force participation rate is a key barometer of labor market health and is of particular interest to economists. This is especially true for so-called prime-age workers, or individuals ages 25 – 54. In the years following the Great Recession, this age group, traditionally the backbone of the nation’s workforce, was hit hard and remained on the sidelines for longer than anticipated. Some researchers have blamed the opioid epidemic, government social programs, and even depression for this decline. Fortunately, it has been prime-age workers that have driven the revival in participation rates over the past few years (Figure 3). But while there has been improvement, there is still work to be done as the US lags many other advanced economies in prime-age participation rates (Figure 4). If the US economy is to continue expanding in the face of an aging population, policy makers will need to find new ways to encourage individuals to remain in the labor force for longer and encourage others to rejoin.