Aggregate Labor Force Participation and Unemployment and Demographic Trends

37 Pages Posted: 28 Mar 2019

See all articles by Andreas Hornstein

Andreas Hornstein

Federal Reserve Bank of Richmond

Marianna Kudlyak

Federal Reserve Bank of San Francisco

Multiple version iconThere are 2 versions of this paper

Date Written: February 28, 2019

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%.

Keywords: Labor Force Participation Rate, Unemployment Rate, Demographic Composition, Age Effects, Cohort Effects, Educational Attainment

JEL Classification: E24, J63, J64

Suggested Citation

Hornstein, Andreas and Kudlyak, Marianna, Aggregate Labor Force Participation and Unemployment and Demographic Trends (February 28, 2019). Available at SSRN: https://ssrn.com/abstract=3347310 or http://dx.doi.org/10.2139/ssrn.3347310

Andreas Hornstein

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

Marianna Kudlyak (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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