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Aggregate Labor Force Participation and Unemployment and Demographic Trends

Author

Listed:
  • Andreas Hornstein
  • Marianna Kudlyak

    (Federal Reserve Bank of San Francisco
    Federal Reserve Bank of Richmond)

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 and 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 Series 2019-7, Federal Reserve Bank of San Francisco, revised 28 Feb 2019.
  • Handle: RePEc:fip:fedfwp:2019-07
    DOI: 10.24148/wp2019-07
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Willem Van Zandweghe & Didem Tuzemen, 2018. "The Cyclical Behavior of Labor Force Participation," Research Working Paper RWP 18-8, Federal Reserve Bank of Kansas City, revised 01 Aug 2018.
    4. Robert Shackleton, 2018. "Estimating and Projecting Potential Output Using CBO’s Forecasting Growth Model: Working Paper 2018-03," Working Papers 53558, Congressional Budget Office.
    5. repec:tpr:restat:v:100:y:2018:i:2:p:219-231 is not listed on IDEAS
    6. Isabel Cairo & Camilo Morales-Jimenez & Shigeru Fujita, 2019. "Elasticities of Labor Supply and Labor Force Participation Flows," Working Papers 19-3, Federal Reserve Bank of Philadelphia, revised 25 Mar 2019.
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