February 26th 2016 - Written by: Michael O'Donnell

Labor Force Participation Rate Trends

A data series that economists follow closely is the labor force participation rate. The labor force participation rate, which is estimated by the Bureau of Labor Statistics (BLS), is the labor force aged at least 16 years (or all appropriately aged individuals classified as employed or unemployed) as a percent of the civilian noninstitutional population aged 16 or more. Prior to the Great Recession, the US participation rate peaked at 66.4%. In other words, 66.4% of all noninstitutionalized individuals were either employed or looking for work. However, post-recession, the rate has been on a downward trajectory and has now registers 62.7%. Analysts often argue that the declining participation rate is worrisome because it may signify weakness in the economy, and specifically in the job market. The argument goes: if the economy was in a better position, an increasing proportion of the population would be either working or looking for work.

part rate 16 and older

While this may be true to a degree, it is also important to recognize that the participation rate described above aggregates all (noninstitutional) individuals that are at least 16 years old and the story changes somewhat when one accounts for age cohort. Taking into consideration age cohort is useful because inter-cohort trends are likely to be different and individuals in different cohorts are likely to have disparate reasons for participating (or not participating) in the labor force.

With regard to the 16 to 19 year old age cohort and the 20 to 24 age cohort, the respective participation rates have fallen more than the aggregated rate. The pre-recession peak in the 20 to 24 age cohort was 75.6% and is now bouncing between 70.0% and 71.0%; the decline is especially pronounced in the 16 to 19 age cohort which has fallen about ten percentage points from around 44.0% to about 34.0%.

Part rate 16-24

Although the younger age cohorts (24 years and below) have declined, the oldest age cohort experienced gains prior to the recession, during the recession and after the recession. That cohort reached its peak by the end of 2012 at 40.7%. The rate has fallen since to about 40.0%, but is still above levels seen prior to the recession. The elevated rate implies that although the population aged 55 and above is growing, an increasing share of that group is continuing to work or look for work.

part rate 55 and older

Trends of the prime working aged cohort (aged 25 to 54) fall somewhere between the extremes of the young and old cohorts but, on balance, the participation rate has fallen after the recession. The pre-recession peak was reached in July 2007 at 83.4% and is currently sitting at 81.1%. While this is a decline of 2.3 percentage points, it is a smaller decline than 3.7 percentage point drop for all individuals aged 16 or older (shown in the first figure).

part rate 25 to 54

This blog post was designed to illustrate the trends in the participation rate by age cohort and how those trends differ from the overall rate. In a subsequent post, I will offer possible reasons for cohort differences.

The Bureau of Business & Economic Research employs a diverse staff with a wide range of specializations and interests. The views and opinions expressed on this blog belong to the individual authors alone, and do not necessarily reflect the opinions of BBER or UNM.


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