Academic journal article Monthly Labor Review

Employed Workers Leaving the Labor Force: An Analysis of Recent Trends

Academic journal article Monthly Labor Review

Employed Workers Leaving the Labor Force: An Analysis of Recent Trends

Article excerpt

This article looks at the large increase in the number of people who moved from employed to not in the labor force during the 2013-14 to 2015-16 period, both overall and for workers ages 25-54. Although some of this increase can be attributed to the business cycle, there has been a greater flow from employment to retirement or to schooling than at the peak of the previous business cycle. Demographic changes explain relatively little of the increase, especially for the 25-54 age group. This movement may reflect long-term changes in the labor market.

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The labor force participation rate--the percentage of the population that is either employed or unemployed (that is, either working or actively seeking work)--has been declining in recent years, from a peak of 67.3 percent in early 2000 to an average of 62.8 percent in 2016. (1) Most of this decline is associated with the Great Recession and its aftermath, as the rate was still 66.0 percent as of 2008. A large part of the decline in labor force participation is due to the aging of the population, as the proportion ages 65 and older increased from about 16 percent in 2008-09 to about 19 percent in December 2016. However, even within the 25-54 age group, the participation rate declined from about 83 percent in 2008 to below 81 percent in 2014-15; the rate had recovered somewhat to 81.5 percent as of December 2016. The decline in the labor force participation rate has given rise to concerns that the postrecession decline in the unemployment rate to below 5 percent may overstate the health of the labor market. (2)

Changes in labor force participation can be analyzed by looking at trends in entering and exiting the labor force. While month-to-month changes in the proportion of the population participating in the labor force are fairly small, each month millions of people enter and exit the labor force, as well as moving into or out of employment or unemployment. The U.S. Bureau of Labor Statistics (BLS) reports estimates of the number of people changing their labor force status from one month to the next. (3)

This article concentrates on exits from the labor force--in particular, trends in labor force exit by the employed. While trends in exits from the labor force for the unemployed may be explained principally by the business cycle, trends in exits from employment are not as clearly influenced by the business cycle and may suggest longer term changes in the desirability of work. Within the article, we sometimes show employment as E, unemployment as U, not in the labor force as NILF, flows from employed to NILF as EN, and flows from unemployed to NILF as UN.

Labor force entrances and exits

Before turning to labor force exits, we begin by looking briefly at trends in labor force entrances, which are also important in determining labor force participation. Figure 1 shows labor force entrance flows as a percentage of the population from 2004 to the present. The figure shows the sum of flows from not in the labor force to employment and from not in the labor force to unemployment. Entrances as a proportion of the population declined heading into the 2007-2009 recession, climbed in the immediate aftermath, but have decreased in recent years. Figure 2 shows entrance rates as a percentage of people who were NILF the previous month instead of as a percentage of the population; these entrance rates show a much more marked decline in recent years because people who are NILF are an increasing proportion of the population. One should note that the proportion of NILF ages 55 and older has increased over the period from a 12-month average of 53.3 percent in 2004 to 56.8 percent in 2016; this increase would typically depress labor force entrance rates.

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We now turn our attention to labor force exits. Figure 3 shows 12-month moving averages of exits from the labor force, along with its components. …

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