Is the US Labor Force Shrinking?

During the pandemic, innovative forecast models did not surpass reference models in forecasting inflation. To ensure the security and soundness of institutions, the stability of markets and the fair and equitable treatment of consumers, the Federal Reserve Bank of Kansas City has been exploring community and economic development trends in the Tenth Federal Reserve District. Access lesson plans, books and more to connect with students from different backgrounds and see behind-the-scenes photos of the coin conservation process. Didem Tüzemen, a senior economist at the Federal Reserve Bank of Kansas City, recently conducted an analysis to explore the opportunities offered by a smaller but warmer labor market, identify populations that could drive labor force growth, and point to public policy interventions that could increase labor force participation.

The analysis revealed that men and women aged 25 to 54 with less than a bachelor's degree reduced total labor force participation by 0.81 percentage points and 0.83 percentage points respectively since 2000. This experience provides evidence that factors can, in fact, drive labor force participation within demographic groups. Figure 2 shows that until recently, prime age people represented the majority of the missing workforce. The Federal Reserve has tried to curb inflation by raising interest rates, something that economists say could also cool demand for labor.

Labor force participation has also been influenced by the economic cycle, as it declined after the Great Recession and the COVID-19 recession and later recovered as conditions improved. While there has been a slight recovery in labor force participation rates since the start of the pandemic, current economic policies and government jobless welfare programs are holding back labor force participation. Calculating changes in the size of the population and labor force in relation to pre-pandemic projections is less simple than it seems. The labor force participation rate, which counts the percentage of Americans aged 16 and over who are working or looking for work, fell to 62.1% in July after rising to 62.4% earlier this year. The greatest decline in the labor force has occurred among people aged 55 and over, and people aged 65 and over account for about one-third of the total decline due to a combination of deaths in this group and lower participation in the labor force.

The gap between the maroon and orange lines shows that the workforce would have 0.5 million more workers if the proportion of older adults in the population had not increased. This group should attract the attention of policymakers who want to increase the size of the labor market, and The Hamilton Project has presented policy proposals that improve productivity and allow for advancement in jobs that require less formal education. Changes in the size of the aggregate labor force may be due to changes in the size of the population as well as changes in the rate at which the population participates in the labor force. As the current COVID-19 pandemic becomes endemic, proposals that allow people with disabilities to participate more fully in the labor market are essential to help improve participation. To ensure a secure future for our economy, it is important to understand how different factors are influencing labor force participation.

Marlene Barcelo
Marlene Barcelo

Avid social media aficionado. Friendly burrito fan. Wannabe music trailblazer. Subtly charming organizer. Passionate tv aficionado.

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