Why is the Labour Force Shrinking? An Expert's Perspective

Managers are facing a key challenge in employee satisfaction, which is leading to a decrease in the size of the labour force. Surveys have shown that the magnitude of this decline during the pandemic was unprecedented, with labour force participation rates dropping during or immediately after a recession. Secular forces, such as the retirement of the baby boomer generation, are thought to be the main cause of this decrease. However, the size of the workforce varies from state to state due to population growth. Research has highlighted the sharp decline in labour force participation rates as an explanation for this decrease.

However, population growth over time has been given less attention. To mitigate downward pressures on their workforces in the future, states should invest in initiatives that make their places more attractive, either financially or with better quality of life. The labour force participation rate of men aged 25 to 54 has decreased from 98% in 1954 to 88% today. This is due to the oldest baby boomers reaching 55 and having lower participation rates than other cohorts. The overall labour force participation rate reached an all-time high of 67.3% in 2000, but has since decreased. Flexible hours and work-life balance were found to be motivating factors for getting discouraged workers back into the workforce.

Participation rates tend to increase during expansionary periods when jobs become available, suggesting that they will increase in the coming years as workers rejoin the workforce. The care delivery challenges created by school closures, day care centre closures and health risks faced by older adults have caused millions of women to leave the workforce during the pandemic. It is important to understand what has been causing this fall in the labour force participation rate, and whether it will continue to fall. The retirement rate of baby boomers is thought to be the main cause of this decrease. Therefore, whether labour force participation will continue to decline depends largely on how long this retirement rate continues to increase.

Marlene Barcelo
Marlene Barcelo

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

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