Population Aging and the US Labor Force Participation Rate

The labor force participation rate dropped sharply at the beginning of the pandemic, and as of November 2021 it had recovered only about half of its lost ground. The failure of the participation rate to get closer to its level immediately before the pandemic has puzzled many analysts. In this note, we show that the current participation rate is much less puzzling if one compares it with participation in November 2017 (the last time the unemployment rate was at its current level of 4.2 percent), rather than February 2020 (immediately before the pandemic). Since November 2017, population aging has continued to exert a strong downward pull on the participation rate, so that participation is now close to what one would expect, given the current unemployment rate and the current age structure of the population. In the future, rising educational attainment will offset the negative effect of aging on participation to some degree. But a complete recovery of the participation rate to its February 2020 level may be difficult to achieve without substantial further declines in the unemployment rate.