The US labor force is declining due to a decrease in birth rates and an increase in discouraged workers leaving the labor force. In the early 1950s, there were about 24 births per 1,000 people in the United States. This has caused a decrease in the labor force participation rate, which is calculated as the fraction of the working population multiplied by the general population. The participation rate in the civilian labor force is the sum of all people employed or considered officially unemployed divided by the total population over 16 years of age.
This rate has been decreasing due to young people (whose participation in school and not in the labor market has reduced the aggregate LFPR for decades) exceeding (this is true for men) or being close to exceeding (it is true for women) their pre-pandemic LFPR. This suggests that younger and older workers do not face unique challenges in the labor market on an ongoing basis. The problem is that population demographics have changed in recent years in a way that will reduce labor force participation rates. Only one state (Utah) and the District of Columbia experienced increases in their labor force participation rates for the total working-age population aged 16 and over, while 38 states experienced decreases.
Since labor market demand is much higher than before the pandemic, this is surprising and indicates a worrying level of discouragement among the unemployed. Small changes in these enormous flows largely determine whether the labor force participation of prime age workers increases or decreases. It is important to understand why this decline is occurring so that we can take steps to address it.
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