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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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October 15, 2014


What's behind Declining Labor Force Participation? Test Your Hypothesis with Our New Data Tool

The share of people (age 16 and over) participating in the labor market—that is, either working or looking for work—declined significantly during the recession. As many researchers have noted (see our list of supplemental reading under "More Information"), there is clearly a cyclical component to the decline. When labor market opportunities dry up, it influences decisions to pursue activities other than work, such as schooling, taking care of family, or retiring. However, much of the decrease in the overall labor force participation rate (LFPR) could be the result of the continuation of longer-term behavioral and demographic trends.

While the U.S. Bureau of Labor Statistics (BLS) produces aggregate statistics on LFPR by various demographic measures, the published data tables don't detail the reasons people give for not participating in the labor market. However, we have cut and coded the micro monthly data from BLS's Current Population Survey so that you can explore your own questions.

For example: Are millennials less likely to participate in the labor market than earlier cohorts? Are people retiring sooner? Are women less likely to stay at home than in the past? You can answer these and other types of questions on our new Labor Force Participation Dynamics page (click on "Interact and Download Data").

In addition to allowing you to create your own charts and download the chart data, the website also guides you through some of the major factors we found that contributed to the decline in LFPR from 2007 to mid-2014, as well as a picture of the trend in those factors before the recession began.

The chart below (also in the Executive Summary) provides an overview of the major factors that we noted in our analysis of the data. Each bar shows the contribution to the 3 percentage point change in the overall LFPR from 2007 to mid-2014.

What the chart doesn't show is whether the trends were occurring before the Great Recession. For a deeper dive into any of the factors in the chart, see the "Long-Term Behavioral and Demographic Trends" section. The most influential factor has been the changing distribution of the population (see "Aging 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 (click on "Health Problems"), increased school attendance among the young (click on "Rising Education"), 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").

These are the factors we found to be the most significant drivers of changes in LFPR, but you can also explore many other questions with these data. Check out the interactive data tools and read our take on the data and let us know what you think.


October 15, 2014 in Economic conditions , Employment , Labor Markets | Permalink

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Comments

This research clearly shows that US economy is still in deep trouble and the policies adopted by US govt. are not working as they should.

Posted by: ashish barua | October 17, 2014 at 04:26 AM

While the data reflects the aging
population, Creative destruction play a significant in participation in LFPR because many industries in which labor play a greater role is rapidly declining. We need a new aggressive strategy to stem the tide by investing in American human capital to slow the unforgiven labor markets.

Posted by: Akande Olusola | October 18, 2014 at 03:42 PM

Nice analysis but limited in that it offers a "what" but not necessarily a why.
So, many more people are seeking disability, is this a function of more disability or is it related to a dearth of meaningful jobs so that disability becomes a better alternatives?
Another example, albeit anecdotal, thousands have retired from the Postal Service as a result of incentives/force. Many were nominally of retirement age or close and so appear to be among the cohort leaving the market due to age. How many of these folks would have stayed in the labor market if reasonable opportunities were available?
It seems the above data is crying out for deeper explanation.

Posted by: MJamison | October 19, 2014 at 05:05 AM

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