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Recent U.S. Labor Force Dynamics; Reversible or not?

Author

Listed:
  • Ravi Balakrishnan
  • Mai Dao
  • Juan Sole
  • Jeremy Zook

Abstract

The U.S. labor force participation rate (LFPR) fell dramatically following the Great Recession and has yet to start recovering. A key question is how much of the post-2007 decline is reversible, something which is central to the policy debate. The key finding of this paper is that while around ¼–? of the post-2007 decline is reversible, the LFPR will continue to decline given population aging. This paper’s measure of the “employment gap” also suggests that labor market slack remains and will only decline gradually, pointing to a still important role for stimulative macro-economic policies to help reach full employment. In addition, given the continued downward pressure on the LFPR, labor supply measures will be an essential component of the strategy to boost potential growth. Finally, stimulative macroeconomic and labor supply policies should also help reduce the scope for further hysteresis effects to develop (e.g., loss of skills, discouragement).

Suggested Citation

  • Ravi Balakrishnan & Mai Dao & Juan Sole & Jeremy Zook, 2015. "Recent U.S. Labor Force Dynamics; Reversible or not?," IMF Working Papers 15/76, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/76
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    References listed on IDEAS

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    1. 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.
    2. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, july-dece.
    3. 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.
    4. Alicia Sasser Modestino & Julia Dennett, 2013. "Uncertain futures?: youth attachment to the labor market in the United States and New England," New England Public Policy Center Research Report 13-3, Federal Reserve Bank of Boston.
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    Cited by:

    1. José Manuel Montero & Ana Regil, 2015. "La tasa de actividad en España: resistencia cíclica, determinantes y perspectivas futuras," Occasional Papers 1502, Banco de España;Occasional Papers Homepage.
    2. Svetlana ZAHAROV, 2017. "Educational Structure Of Labour Market In The Republic Of Moldova," THE YEARBOOK OF THE "GH. ZANE" INSTITUTE OF ECONOMIC RESEARCHES, Gheorghe Zane Institute for Economic and Social Research ( from THE ROMANIAN ACADEMY, JASSY BRANCH), vol. 26(1), pages 42-50.

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