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

  • 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)

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/~/media/Files/Programs/ES/BPEA/2006_1_bpea_papers/2006a_bpea_aaronson.pdf
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Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 37 (2006)
Issue (Month): 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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  1. Paul J. Devereux, 2004. "Changes in Relative Wages and Family Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  2. Harris Dellas & Plutarchos Sakellaris, 2003. "On the cyclicality of schooling: theory and evidence," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 148-172, January.
  3. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
  4. Robert Haveman & Philip de Jong & Barbara Wolfe, 1991. "Disability Transfers and the Work Decision of Older Men," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 939-949.
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  7. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-34, February.
  8. Greene, William H & Seaks, Terry G, 1991. "The Restricted Least Squares Estimator: A Pedagogical Note," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 563-67, August.
  9. Juhn, Chinhui & Murphy, Kevin M, 1997. "Wage Inequality and Family Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 72-97, January.
  10. Mark C. Berger, 1983. "Changes in Labor Force Composition and Male Earnings: A Production Approach," Journal of Human Resources, University of Wisconsin Press, vol. 18(2), pages 177-196.
  11. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-60, August.
  12. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
  13. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  14. Chinhui Juhn, 1992. "Decline of Male Labor Market Participation: The Role of Declining Market Opportunities," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 79-121.
  15. Finis Welch, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," UCLA Economics Working Papers 146, UCLA Department of Economics.
  16. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  17. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S65-97, October.
  18. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters, in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
  19. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did Productivity Growth Go? Inflation Dynamics and the Distribution of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 67-150.
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