Recent U.S. Labor Force Dynamics: Reversible or Not?

30 Pages Posted: 5 May 2015

See all articles by Ravi Balakrishnan

Ravi Balakrishnan

International Monetary Fund (IMF) - Fiscal Affairs Department

Mai Dao

International Monetary Fund (IMF)

Juan A. Solé

International Monetary Fund (IMF)

Jeremy Zook

International Monetary Fund (IMF)

Date Written: April 2015

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 ¼–⅓ 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).

Keywords: Labor force participation, United States, Aging, Unemployment, Older people, employment gap, macro-economic policy., labor market, labor supply, workers, older workers, labor statistics, employment growth, unemployment rate, labor demand

JEL Classification: E24, E32, E52, J21

Suggested Citation

Balakrishnan, Ravi and Dao, Mai and Sole, Juan A. and Zook, Jeremy, Recent U.S. Labor Force Dynamics: Reversible or Not? (April 2015). IMF Working Paper No. 15/76. Available at SSRN: https://ssrn.com/abstract=2602675

Ravi Balakrishnan (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States
001 202 623 5674 (Phone)
001 202 623 6249 (Fax)

Mai Dao

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Juan A. Sole

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Jeremy Zook

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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