According to several surveys, the key challenge for managers is employee satisfaction, which underpins the inability of companies to maintain their workforce. While the magnitude of the decline in labor force participation rates during the pandemic was unprecedented, Figure 2 shows that participation rates tend to decline during or immediately after a recession. They cite secular (as opposed to cyclical) forces as the main reason for the decline, mainly the start of retirement of the baby boomer generation. However, the size of these contributions varies from state to state, making the overall change in the size of each state's workforce vary widely.
While many researchers have pointed to the sharp decline in labor force participation rates as an explanation, the role of population growth over time has received less attention. Investing in initiatives that improve the attractiveness of places, whether financially or with better quality of life, can be a way for states to mitigate downward pressures on their workforces in the future. It is clear that the demand for men with secondary education has dropped considerably, which has probably decreased their participation in the labor force. Compared to participation rates, population growth has more consistently contributed to the overall growth of the labor force from year to year.
Specifically, the labor force participation of men aged 25 to 54 has steadily declined, from 98 percent in 1954 to 88 percent today. By the early 2000s, the oldest baby boomers had turned 55, and since then, the lower participation rates in this cohort have put downward pressure on overall labor force participation rates. The labor force participation rate, which measures the number of Americans aged 16 and over currently in employment or seeking employment, increased gradually during the 1970s, 1980s and 1990s before reaching an all-time high of 67.3% in 2000. In fact, flexible hours and work-life balance were the second and third most motivating factors in getting discouraged workers back into the workforce.
In addition, participation rates tend to increase during the expansionary periods that follow these declines as jobs increase, suggesting that participation rates are likely to increase in the coming years as workers rejoin the workforce to cover high levels of job offers. The care delivery challenges created by the in-person closure of schools, the closure of day care centers and the serious health risks faced by older adults have played an important role in the decision of millions of women to leave the workforce during the pandemic. Because of these effects, it's important to understand what has been causing the fall in the labor force participation rate and whether it will continue to fall. However, labor force participation is not the only factor that contributes to the size of the workforce.
Population growth is also significant. Since the main cause of the fall in the labor force participation rate is the retirement of baby boomers, the answer to the question of whether labor force participation will continue to decline depends largely on how long the retirement rate of baby boomers continues to increase.
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