IDEAS home Printed from https://ideas.repec.org/a/bin/bpeajo/v45y2014i2014-02p197-275.html
   My bibliography  Save this article

Labor Force Participation: Recent Developments and Future Prospects

Author

Listed:
  • Stephanie Aaronson

    (Federal Reserve Board)

  • Tomaz Cajner

    (Federal Reserve Board)

  • Bruce Fallick

    (Federal Reserve Bank of Cleveland)

  • Felix Galbis-Reig

    (Federal Reserve Board)

  • Christopher Smith

    (Federal Reserve Board)

  • William Wascher

    (Federal Reserve Board)

Abstract

Since 2007, the labor force participation rate has fallen from about 66 percent to about 63 percent. The sources of this decline have been widely debated among academics and policymakers, with some arguing that the participation rate is depressed due to weak labor demand while others argue that the decline was inevitable due to structural forces such as the aging of the population. In this paper, we use a variety of approaches to assess reasons for the decline in participation. Although these approaches yield somewhat different estimates of the extent to which the recent decline in participation reflects cyclical weakness rather than structural factors, our overall assessment is that much - but not all - of the decline in the labor force participation rate since 2007 is structural in nature. As a result, while we see some of the current low level of the participation rate as indicative of labor market slack, we do not expect the participation rate to show a substantial increase from current levels as labor market conditions continue to improve.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
  • Handle: RePEc:bin:bpeajo:v:45:y:2014:i:2014-02:p:197-275
    as

    Download full text from publisher

    File URL: https://www.brookings.edu/wp-content/uploads/2016/07/Fall2014BPEA_Aaronson_et_al.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elsby, Michael & Hobijn, Bart & Sahin, Aysegül, 2013. "On the Importance of the Participation Margin for Market Fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
    2. Christopher L. Foote & Richard W. Ryan, 2015. "Labor-Market Polarization over the Business Cycle," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 371-413.
    3. Nir Jaimovich & Henry E. Siu, 2012. "The Trend is the Cycle: Job Polarization and Jobless Recoveries," NBER Working Papers 18334, National Bureau of Economic Research, Inc.
    4. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    5. Gorodnichenko, Yuriy & Song, Jae & Stolyarov, Dmitriy, 2013. "Macroeconomic Determinants of Retirement Timing," IZA Discussion Papers 7744, Institute for the Study of Labor (IZA).
    6. Benito, Andrew & Bunn, Philip, 2011. "Understanding labour force participation in the United Kingdom," Bank of England Quarterly Bulletin, Bank of England, vol. 51(1), pages 36-42.
    7. Kudlyak, Marianna, 2013. "A Cohort Model of Labor Force Participation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 25-43.
    8. Hess Chung & Bruce C. Fallick & Christopher J. Nekarda & David Ratner, 2014. "Assessing the Change in Labor Market Conditions," FEDS Notes 2014-05-22, Board of Governors of the Federal Reserve System (U.S.).
    9. David H. Autor & Mark G. Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 71-96, Summer.
    10. Mastrobuoni, Giovanni, 2009. "Labor supply effects of the recent social security benefit cuts: Empirical estimates using cohort discontinuities," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1224-1233, December.
    11. Claudia Goldin, 2006. "The Quiet Revolution That Transformed Women's Employment, Education, and Family," American Economic Review, American Economic Association, vol. 96(2), pages 1-21, May.
    12. Barnichon, Regis & Figura, Andrew, 2013. "Declining Labor Force Attachment and Downward Trends in Unemployment and Participation," Finance and Economics Discussion Series 2013-88, Board of Governors of the Federal Reserve System (U.S.).
    13. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
    14. Almut Balleer & Ramon Gomez-Salvador & Jarkko Turunen, 2014. "Labour force participation across Europe: a cohort-based analysis," Empirical Economics, Springer, vol. 46(4), pages 1385-1415, June.
    15. Andreas I. Mueller & Jesse Rothstein & Till M. von Wachter, 2016. "Unemployment Insurance and Disability Insurance in the Great Recession," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 445-475.
    16. Christopher J. Erceg & Andrew T. Levin, 2014. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 3-49, October.
    17. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
    18. Fujita, Shigeru, 2014. "On the causes of declines in the labor force participation rate," Research Rap Special Report, Federal Reserve Bank of Philadelphia, issue Feb.
    19. Bruce C. Fallick & Jonathan F. 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.).
    20. 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.
    21. David H. Autor, 2015. "The unsustainable rise of the disability rolls in the United States: causes, consequences and policy options," Chapters,in: Social Policies in an Age of Austerity, chapter 5, pages 107-136 Edward Elgar Publishing.
    22. David H. Autor & David Dorn & Gordon H. Hanson, 2015. "Untangling Trade and Technology: Evidence from Local Labour Markets," Economic Journal, Royal Economic Society, vol. 0(584), pages 621-646, May.
    23. Kim B. Clark & Lawrence H. Summers, 1982. "Labour Force Participation: Timing and Persistence," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 825-844.
    24. Michelle L. Barnes & Fabià Gumbau-Brisa & Giovanni P. Olivei, 2013. "Cyclical versus secular: decomposing the recent decline in U.S. labor force participation," Public Policy Brief, Federal Reserve Bank of Boston.
    25. Mark Duggan & Scott A. Imberman, 2009. "Why Are the Disability Rolls Skyrocketing? The Contribution of Population Characteristics, Economic Conditions, and Program Generosity," NBER Chapters,in: Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly, pages 337-379 National Bureau of Economic Research, Inc.
    26. 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.
    27. Goldin, Claudia, 2006. "The Quiet Revolution That Transformed Women’s Employment, Education, and Family," Scholarly Articles 2943933, Harvard University Department of Economics.
    28. Daniel Aaronson & Kyung-Hong Park & Daniel G. Sullivan, 2006. "The decline in teen labor force participation," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 2-18.
    29. David M. Blau & Ryan M. Goodstein, 2010. "Can Social Security Explain Trends in Labor Force Participation of Older Men in the United States?," Journal of Human Resources, University of Wisconsin Press, vol. 45(2).
    30. Jin Young Lee, 2014. "The Plateau in U.S. Women's Labor Force Participation: A Cohort Analysis," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 53(1), pages 46-71, January.
    31. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, Elsevier.
    32. Kerwin Kofi Charles & Erik Hurst & Matthew J. Notowidigdo, 2013. "Housing Booms, Manufacturing Decline, and Labor Market Outcomes," NBER Working Papers 18949, National Bureau of Economic Research, Inc.
    33. Balleer, Almut & Gómez-Salvador, Ramón & Turunen, Jarkko, 2009. "Labour force participation in the euro area: a cohort based analysis," Working Paper Series 1049, European Central Bank.
    34. Robert E. Hall, 2014. "Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis," NBER Chapters,in: NBER Macroeconomics Annual 2014, Volume 29, pages 71-128 National Bureau of Economic Research, Inc.
    35. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    36. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    37. Daniel Aaronson & Jonathan Davis & Luojia Hu, 2012. "Explaining the decline in the U.S. labor force participation rate," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Mar.
    38. Willem Van Zandweghe, 2012. "Interpreting the recent decline in labor force participation," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-34.
    39. Hiroshi Kawata & Saori Naganuma, 2010. "Labor Force Participation Rate in Japan," Bank of Japan Review Series 10-E-7, Bank of Japan.
    40. Julie L. Hotchkiss & Fernando Rios-Avila, 2013. "Identifying Factors behind the Decline in the U.S. Labor Force Participation Rate," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 257-275, June.
    41. 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.
    42. Duval Hernández, Robert & Orraca Romano, Pedro, 2009. "A Cohort Analysis of Labor Participation in Mexico, 1987-2009," IZA Discussion Papers 4371, Institute for the Study of Labor (IZA).
    43. Clifford Clogg, 1982. "Cohort Analysis of Recent Trends in Labor Force Participation," Demography, Springer;Population Association of America (PAA), vol. 19(4), pages 459-479, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    labor force participation rate; labor; decline; labor market; great recession;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bin:bpeajo:v:45:y:2014:i:2014-02:p:197-275. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Ambrosino). General contact details of provider: http://edirc.repec.org/data/esbrous.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.