February 17, 2017

What Caused Changes in Labor Force Participation 2007-2016

The below information and the graphic are a direct copy/paste off of the Federal Reserve of Atlanta page

The following factors put downward pressure on the labor force participation rate between 2007 and 2016.

Aging of the population: The aging of the population has had a significant effect on the LFP rate. Without the shifting distribution of the population towards older individuals since 2007, the overall labor force participation rate in Q4 2016 would have been 2.1 percentage points higher.
Rising education: Education has become increasingly important in the last couple of decades. Young people are devoting more of their time to schooling instead of the labor market, and older individuals are more likely to return to school to move forward in their careers than in the past. The recession likely amplified these trends as it allowed youth to delay entry into the job market and gave others an opportunity to retool. Rising school attendance explains about 0.9 percentage points of the overall decline between 2007 and 2016.
Health problems: The percent of the population who say they are too sick or disabled to work has been rising for some time, and the rise has been occurring even among young and prime-age individuals. Holding the age distribution of the population fixed at 2007 shares, the increase has contributed 0.6 percentage points to the overall decline in labor force participation.
Shadow labor force: The percent of the population on the margin of the labor force who say they want a job but for some reason are not actively looking for work rose during the recession across all age groups. The contribution of this factor has shrunk over the last couple of years, but still accounts for about 0.4 points of the overall decline between 2007 and 2016.

The following factors put upward pressure on the labor force participation rate between 2007 and 2016:

Retirement: A significant factor that has worked against declining participation is that a larger share of older Americans are staying in the labor force than in the past. All else being equal, if those people older than 60 were just as likely to retire in 2016 as they were in 2007, the labor force participation rate would now be about 0.90 percentage point lower.
Family responsibilities: The share of the population who chose not to participate in the labor market because they were taking care of their family declined during the Great Recession—especially among women. This pushed the labor force participation rate of women about 0.55 percentage points higher than it would have been between 2007 and 2010, but this effect has largely dissipated.


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