Labor Force Participation Rate: Is it as Bad as People Think?

A paper public back in 2006 and co-authored by five members of the Board of Governors for the Federal Reserve System is worth noting in today’s environment. Titled The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply, this paper focuses on why the labor participation rate had dropped from 2000 thru 2006 and then looked at what would happen with the participation rate moving into the future.

Quoting from the paper:

“On balance, the results suggest that most of the decline in the participation rate during and immediately following the 2001 recession was a response to business cycle developments. However, the continued decline in participation in subsequent years and the absence of a significant rebound in 2005 appear to derive from other, more structural factors. Indeed, the participation rate at the end of 2005 was close to our model-based estimate of its longer-run trend level, suggesting that the current state of the labor market is roughly neutral for the participation rate. Finally, projections from the model suggest that many of these structural factors will continue to put downward pressure on the participation rate for some time, so that any future cyclical fluctuations in participation will take place around a declining trend. This continued downtrend, coupled with slower projected population growth and an apparent downtrend in the average workweek, suggests that trend growth of aggregate hours will slow further in coming years.”

The paper predicted, back in 2006, that the average labor force participation rate for 2013 would be 63.3%. According to the BLS, the average participation rate for 2013 is 63.258% or 63.3%.

Well, now.

It seems that demographic shifts, as boomers head toward retirement, have as much to do with our lower labor force participation rate as does anything else in our economy. Conservatives won’t like this because it chips away at the foundation for their persistent bashing of the President and his policies. While I’m no fan of our current President, this research shows that the lower participation rate is not due, entirely, to our sluggish economy.

Read more here.

Bill English, CEO


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