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The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply

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Author Info
Stephanie Aaronson (Board of Governors of the Federal Reserve Board)
Bruce Fallick (Board of Governors of the Federal Reserve Board)
Andrew Figura (Board of Governors of the Federal Reserve Board)
Jonathan Pingle (Board of Governors of the Federal Reserve Board)
William Wascher (Board of Governors of the Federal Reserve Board)

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Abstract

The U.S. labor force participation rate rose rapidly during the 1960s, 1970s, and 1980s. It then flattened out in the 1990s, and since 2000 it has fallen, without much sign of an imminent rebound. We attempt to distinguish between cyclical and structural influences on the participation rate by estimating the roles of demographic factors, the business cycle, and other factors. We conclude that the drop in labor force participation between 2000 and 2003 was due largely to cyclical factors, but that this decline and subsequent movements occurred against the backdrop of a longer-run downtrend. We estimate that the actual participation rate at the end of 2005 was close to the estimated trend level. However, barring major changes in policy or behavioral trends, the participation rate will likely continue to trend downward in coming years.

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File URL: http://www.brookings.edu/press/Journals/2006/brookingspapersoneconomicactivity12006.aspx
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Publisher Info
Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 37 (2006)
Issue (Month): 2006-1 ()
Pages: 69-154
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Handle: RePEc:bin:bpeajo:v:37:y:2006:i:2006-1:p:69-154

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Related research
Keywords: macroeconomics; labor force; labor force participation rate; labor supply;

Find related papers by JEL classification:
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christopher H. Wheeler, 2007. "Trends in neighborhood-level unemployment in the United States: 1980 to 2000," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-142. [Downloadable!]
  2. Kenneth J. Matheny, 2009. "Trends in the aggregate labor force," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 297-310. [Downloadable!]
  3. Robert J. Tetlow, 2009. "Commentary on The challenges of estimating potential output in real time," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 291-296. [Downloadable!]
  4. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2007. "A retrospective look at the U.S. productivity growth resurgence," Staff Reports 277, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  5. Kitov, Ivan & Kitov, Oleg, 2008. "The driving force of labor force participation in developed countries," MPRA Paper 8677, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Christopher L. Foote, 2007. "Space and time in macroeconomic panel data: young workers and state-level unemployment revisited," Working Papers 07-10, Federal Reserve Bank of Boston. [Downloadable!]
  7. Almut Balleer & Ramon Gomez-Salvador & Jarkko Turunen, 2009. "Labour Force Participation in the Euro Area - A Cohort Based Analysis," Working Paper Series 1049, European Central Bank. [Downloadable!]
  8. Hélène Perivier, 2007. "Les femmes sur le marché du travail aux États-Unis - Une mise en perspective avec la France et la Suède," Documents de Travail de l'OFCE 2007-07, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  9. Bruce Fallick & Jonathan Pingle, 2006. "A cohort-based model of labor force participation," Finance and Economics Discussion Series 2007-09, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Hélène Périvier, 2008. "Les femmes sur le marché du travail aux États-Unis," Documents de Travail de l'OFCE 2008-12, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  11. Julie L. Hotchkiss, 2009. "Decomposing changes in the aggregate labor force participation rate," Working Paper 2009-06, Federal Reserve Bank of Atlanta. [Downloadable!]
Statistics
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This page was last updated on 2009-12-4.


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