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Aggregate Labor Force Participation and Unemployment and Demographic Trends

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  • Andreas Hornstein
  • Marianna Kudlyak

Abstract

We estimate trends in the labor force participation (LFP) and unemployment rates for demographic groups differentiated by age, gender, and education, using a parsimonious statistical model of age, cohort, and cycle effects. Based on the group trends, we construct trends for the aggregate LFP and unemployment rate. Important drivers of the aggregate LFP rate trend are demographic factors, with increasing educational attainment being important throughout the sample, ageing of the population becoming more important since 2000, and changes of groups' trend LFP rates, e.g., for women prior to 2000. The aggregate unemployment rate trend on the other hand is almost exclusively driven by demographic factors, with about equal contributions from an older and more educated population. Extrapolating the estimated trends using Census Bureau population forecasts and our own forecasts for educational shares, we project that over the next 10 years the trend LFP rate will decline to 61.1% from its 2018 value of 62.7% and the trend unemployment rate will decline to 4.3% from its 2018 value of 4.7%.

Suggested Citation

  • Andreas Hornstein & Marianna Kudlyak, 2019. "Aggregate Labor Force Participation and Unemployment and Demographic Trends," Working Paper 19-8, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:19-08
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    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2019/wp19-08.pdf
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    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2019/wp19-08_data_aggregate_lfp_rate.xlsx
    File Function: Aggregate labor force participation rate and unemployment rate
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    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2019/wp19-08_data_educational_attainment.xlsx
    File Function: Educational attainment of the U.S. working-age population
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    References listed on IDEAS

    as
    1. Marianna Kudlyak, 2013. "A Cohort Model of Labor Force Participation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 25-43.
    2. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
    3. Regis Barnichon & Geert Mesters, 2018. "On the Demographic Adjustment of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 219-231, May.
    4. Isabel Cairo & Camilo Morales-Jimenez & Shigeru Fujita, 2019. "Elasticities of Labor Supply and Labor Force Participation Flows," 2019 Meeting Papers 1100, Society for Economic Dynamics.
    5. Stephanie Aaronson & Bruce Fallick & Andrew Figura & Jonathan Pingle & William Wascher, 2006. "The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 69-154.
    6. Stephanie Aaronson & Tomaz Cajner & Bruce Fallick & Felix Galbis-Reig & Christopher Smith & William Wascher, 2014. "Labor Force Participation: Recent Developments and Future Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 197-275.
    7. Didem Tuzemen & Willem Van Zandweghe, 2018. "The Cyclical Behavior of Labor Force Participation," Research Working Paper RWP 18-8, Federal Reserve Bank of Kansas City.
    8. Robert Shackleton, 2018. "Estimating and Projecting Potential Output Using CBO’s Forecasting Growth Model: Working Paper 2018-03," Working Papers 53558, Congressional Budget Office.
    9. Congressional Budget Office, 2018. "CBO’s Projection of Labor Force Participation Rates: Working Paper 2018-04," Working Papers 53616, Congressional Budget Office.
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    Cited by:

    1. Hall, Robert E. & Kudlyak, Marianna, 2022. "The inexorable recoveries of unemployment," Journal of Monetary Economics, Elsevier, vol. 131(C), pages 15-25.
    2. John G. Fernald & Huiyu Li, 2019. "Is Slow Still the New Normal for GDP Growth?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    3. Hie Joo Ahn, 2023. "The role of observed and unobserved heterogeneity in the duration of unemployment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 3-23, January.
    4. Mary C. Daly, 2023. "Forward-Looking Policy in a Real-Time World," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(08), pages 1-8, March.
    5. Ahn, Hie Joo, 2023. "Duration structure of unemployment hazards and the trend unemployment rate," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).

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    Keywords

    Labor Force Participation Rate; Unemployment Rate; Demographic Composition; Age Effects; Cohort Effects; Educational Attainment.;
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