Tuesday, November 4, 2014

What's Behind Declining Labor Force Participation?

There's a hidden implication by many that discuss the decline in labor force participation which is occurring. The implication is that it is able bodied willing workers who simply give up looking for a job because they can't find one. I never suspected that this was the case. Labor markets clear just like any other markets (except for low productivity workers who are hampered in the job search by minimum wage laws). The number of those who are considered as leaving the workforce but who "want" job a minor relative to other factors.

Economists at the Atlanta Fed took a look at the data and reached these conclusions:
The most influential factor has been the changing distribution of the population . The fact that a greater portion of Americans are retirement age now than in 2007 accounts for about 1.7 percentage points of the decline. At the same time, older Americans are more likely to be working than in the past, a trend that has been putting upward pressure on LFPR for some time. All else being equal, if those older than 60 were just as likely to retire as they were in 2007, LFPR would be about 1.0 percentage point lower than it is today.
Other factors bringing down the overall LFPR include an increased incidence of people saying they are unable to work as a result of disability or illness , increased school attendance among the young , and decreased participation among individuals 25–54—the age group with the greatest attachment to the labor force (click on "Focus on Prime Working-Age Individuals").


  1. "Economists at the Atlanta Fed..."?! Really?! While this report fits nicely with EPJ's general message, its hard to take the FED seriously on anything let alone employment numbers. The Black Market might be a better topic for study.

  2. But whatever the reasons, it does highlight the fact that fewer and fewer productive people are supporting more and more nonproductive people. That trend will certainly accelerate