The Future of Labor Force Participation


It’ll come as no surprise to anyone to learn that the recent bleak labor market has led to a decline in the labor force participation rate. But Catherine Rampell finds a new study out from the Congressional Budget Office (PDF) that predicts this is actually a long-term trend:

The report observes that the participation rate peaked at about 67 percent during the late 1990s and in 2000, since that’s when baby boomers were in their prime working-age years of 25 to 54. Women had also been entering the labor force at a rapid clip. But since then the share of women who choose to work has fallen. In fact, it’s now at the lowest level in nearly 20 years. Meanwhile baby boomers are reaching retirement age and dropping out of the labor force. Additionally, the share of people under age 25 who are working or looking for work has also fallen.

This logic seems a bit questionable to me. In the late 1990s we had a tight labor market. That was reflected in growing wages, and the growing wages reflected themselves in a growing labor force participation rate. In the aughts expansion, we didn’t get to the part of the business cycle where wages go up. What’s more, we never re-reached the previous peak of labor force participation. To me those sound like two ways of saying the same thing—weak labor market—not we had weak wage growth due to a weak labor market and this just happened to coincide with women and young people losing interest in work.