Academic journal article Monthly Labor Review

More Entrants or Fewer Leavers? A Look at Rising Labor Force Participation

Academic journal article Monthly Labor Review

More Entrants or Fewer Leavers? A Look at Rising Labor Force Participation

Article excerpt

Labor force participation declined significantly for prime-age workers (25 to 55 years old) during the Great Recession of 2007-09. However, in "Is the hot economy pulling new workers into the labor force?" (Economic Letter, Federal Reserve Bank of San Francisco, May 20, 2019), author Regis Barnichon argues that the current rising labor force participation rate for prime-age workers is a result of fewer people leaving the labor force rather than new people entering.

Barnichon uses counts of individuals in different labor force states at a point in time and counts of individuals moving between labor force states to describe potential scenarios for rising labor force participation. Although most people believe that the rise in labor force participation is the result of a large number of new entrants, the author argues that rising labor force participation is actually a result of fewer labor force leavers.

Using Current Population Survey data from the U.S. Bureau of Labor Statistics, Barnichon compares the inflows and outflows (the probability that workers enter or exit the labor force from one month to the next) from 1976 to 2018 and estimates their contribution to overall labor force participation rates. Based on comparisons, with inflows remaining steady, overall participation closely followed changes in outflows since the end of the Great Recession.

Inflows and outflow rates typically increase during recessions. Some researchers say that the countercyclical inflow rate is a result of the "added-worker effect" in which households that previously had one income might have another adult begin to look for work during economic slowdowns. …

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