The American labor force, as a share of the overall
population, has been shrinking for more than a decade. A detailed
new report from the White House Council of Economic
Advisers estimates the majority of that decline has been driven by the
retirement of the Baby Boom generation and that only one-sixth of the decline
is clearly attributable to the weak economy.
The so-called labor force participation rate, which tracks
the share of the population either working or currently looking for work,
climbed from around 60% in the late 1960s to over 67% in the year 2000, driven
largely by a strong economy and by the increasing number of working women.
Beginning in 2000, however, the labor force began to shrink and the decline has
accelerated since the recession that began in 2007.
The decline has sparked a divide among economists, some of
whom have attributed most of the gains to the simple fact that the Baby
Boomers, who were born after World War II, are now reaching retirement age.
Other economists, however, have argued the Baby Boomers explain a small part of
the decline and the reason the labor force has fallen so much is that the
economy has been historically weak and unprecedented numbers of Americans have
lost their jobs and given up hunting for another one.
The CEA’s paper lands in the middle of this debate, saying
that of the 3.1 percentage point drop in labor force participation since 2007,
1.6 percentage points can be explained by demographics. About 0.5 percentage
point can be explained by the historical pattern that some people in a weak
economy are more likely to give up on the labor force. The CEA says the
remaining 1 percentage point drop results from other factors.
The number of workers who left because of the weak economy
but may return has been shrinking, the report concludes. By many measures the
economy has been improving, albeit slowly, and around 1 million workers who
were sitting things out may have already returned to the labor force, leaving
fewer left sitting on the sidelines.
For many economic policy makers, the key question has been
how much of the decline in the labor force could be reversed. The Fed, for
example, generally believes that monetary policy cannot entice retirees who have
reached their late 60s to return to work. But workers who abandoned the labor
force out of frustration may be willing to resume their job hunts if the
economy returns to strength.
The CEA’s conclusion is that 1.6% of workers are probably
gone to retirement, 0.5% may return as they only left because the economy was
weak, and that the divide among the remaining 1% is unclear.
The CEA analyzes several scenarios for what could happen in
coming years. In a best-case scenario, the labor force participation rate would
rise from its current level of 62.8% to a little above 63%. In most scenarios,
however, the rate would hold steady for a few years and then resume its decline
as more and more of the Baby Boomers born in the 1950s hit retirement age.
The report concludes by noting public policy still has a
role to play, and suggests several parts of the White House’s economic agenda
such as training programs, working-families policies and the Earned Income Tax
Credit could all help promote labor
for the full article from The Wall Street Journal.