Labor Force Participation: Recent Developments and Future Prospects

91 Pages Posted: 12 Sep 2014

See all articles by Stephanie Aaronson

Stephanie Aaronson

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section

Tomaz Cajner

Board of Governors of the Federal Reserve System (FRB)

Bruce Fallick

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Felix Galbis-Reig

Board of Governors of the Federal Reserve System

Christopher L. Smith

Government of the United States of America, Board of Governors of the Federal Reserve System (FRB), Division of Research and Statistics, Macroeconomic Analysis Section

William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics

Multiple version iconThere are 3 versions of this paper

Date Written: September 11, 2014

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.

Keywords: Labor force participation, retirement behavior, disability insurance

JEL Classification: E24, E32, E66, J21, J26

Suggested Citation

Aaronson, Stephanie R. and Cajner, Tomaz and Fallick, Bruce and Galbis-Reig, Felix and Smith, Christopher L. and Wascher, William, Labor Force Participation: Recent Developments and Future Prospects (September 11, 2014). FRB of Cleveland Working Paper No. 14-10. Available at SSRN: https://ssrn.com/abstract=2495029 or http://dx.doi.org/10.2139/ssrn.2495029

Stephanie R. Aaronson

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section ( email )

20th & C. St., N.W.
Mailstop 80
Washington, DC 20551
United States

Tomaz Cajner

Board of Governors of the Federal Reserve System (FRB) ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Bruce Fallick (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Felix Galbis-Reig

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Christopher L. Smith

Government of the United States of America, Board of Governors of the Federal Reserve System (FRB), Division of Research and Statistics, Macroeconomic Analysis Section ( email )

20th & C. St., N.W.
Mailstop 80
Washington, DC 20551
United States

William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2812 (Phone)
202-452-3819 (Fax)

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