Aggregate Labor Force Participation

Article excerpt

08.14.08

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The labor force participation rate--the percentage of the working-age population (16 years and older) employed or looking for a job--rode an upward trend for 30 years, rising from less than 60 percent in the 1960s to about 67 percent in the late 1990s. After peaking at 67.3 percent in the first quarter of 2000, the participation rate fell steadily to around 66 percent by early 2005 and has remained at around 66 percent since then.

The aggregate labor force participation rate typically reported is a more complicated measure than a simple average. It is the weighted sum of the labor force participation rates of all the separate age groups tracked, where the weights are the population distributions of each age-specific group. Because participation rates vary substantially across different age groups, compositional changes of the population can affect the aggregate participation rates.

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The aging of the baby-boom generation is causing a key change in proportions of the different age groups comprising the U.S. population. For most of the postwar period, the size of the labor force rose steadily, pushed up by baby boomers entering prime working age. As the baby-boom cohort starts to retire, the population will shift from people with higher participation rates toward older people with lower participation rates.

When the baby-boom cohort entered the labor force--from 1980 to 2000--the share of prime-age workers (ages 25 to 54) in the population increased from 53 percent to 56 percent. As this cohort starts retiring, the Census Bureau projects that the share of prime-age workers will decrease to 47 percent in the 2020s, and the share of older people will increase to 37 percent. Such a demographic change is expected to push down the aggregate labor force participation rate in the next decades. …