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

Author

Listed:
  • 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)

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.

Suggested Citation

  • 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.
    • Handle: RePEc:bin:bpeajo:v:37:y:2006:i:2006-1:p:69-154
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, 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

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