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A Project of The Annenberg Public Policy Center

Declining Labor Participation Rates

Republicans have tried to temper the latest jobs report — which showed a gain of nearly 300,000 jobs and the unemployment rate dipping to 5.5 percent — by noting that the labor force participation rate has continued to decline. But in at least two instances, the claims have gone too far.

  • Sen. Lindsey Graham said the labor participation rate “is at an all-time low.” That’s not accurate. It was lower between 1948 and 1978.
  • Republican National Committee Chairman Reince Priebus blamed the shrinking participation rate on “the Obama economy,” but economists say most of the decline, which has been happening for more than a decade, is due to demographics, including the trend of baby boomers reaching retirement age and deciding to no longer work.

In a town hall speech in South Carolina on the day the jobs report was released, President Obama pointed to the job growth and declining unemployment rate as evidence that “we’re in much better shape now than we were six years ago.”

The same day, RNC Chairman Priebus issued a statement warning that the “unemployment rate masks the low labor force participation rate” and said that “in the Obama economy” the “percentage of Americans in the labor force has shrunk to levels not seen since the 1970s.”

Priebus, March 6: We also can’t forget that the unemployment rate masks the low labor force participation rate. Too many Americans have given up and stopped looking for work altogether. In fact, in the Obama economy the percentage of Americans in the labor force has shrunk to levels not seen since the 1970s.

That message was echoed by Sen. Graham two days later on NBC’s Meet the Press, when he said, “I think that the labor participation rate is at an all-time low.”

The labor force participation rate, as defined by the Bureau of Labor Statistics, is “the percentage of the population [16 years and older] that is either employed or unemployed (that is, either working or actively seeking work).” Graham, who is considering running for president, is wrong about the rate being at an all-time low. However, as Priebus said, it is at its lowest point since the 1970s — 1978 to be exact.

The following graph from BLS shows the civilian labor force participation rate between 1948 and 2015. As the graph shows, the participation rate in February 2015 (62.8 percent) is the lowest since March 1978. But the rate was lower than that every month between 1948 and 1978.

The low point — according to historical data going back to 1948 — came in December 1954, when the rate was 58.1 percent.

As for Priebus tying the participation rate to the “Obama economy,” there’s more to that story as well. The labor force participation rate has been declining for more than a decade, and economists predict it will continue to decline for the next decade and more.

Consider a report from the Bureau of Labor Statistics issued in November 2006, more than two years before Obama took office and before the start of the Great Recession. It pegged the start of the decline in participation rates at around 2000, and projected the decline would continue for the next four decades.

Bureau of Labor Statistics, November 2006: Every year after 2000, the rate declined gradually, from 66.8 percent in 2001 to 66.0 percent in 2004 and 2005. According to the BLS projections, the overall participation rate will continue its gradual decrease each decade and reach 60.4 percent in 2050.

Among the reasons cited for the trend:

1) The aging of baby boomers. A lower percentage of older Americans choose to work than those who are middle-aged. And so as baby boomers approach retirement age, it lowers the labor force participation rate.

2) A decline in working women. The labor force participation rate for men has been declining since the 1950s. But for a couple decades, a rapid rise in working women more than offset that dip. Women’s labor force participation exploded from nearly 34 percent in 1950 to its peak of 60 percent in 1999. But since then, women’s participation rate has been “displaying a pattern of slow decline.”

3) More young people are going to college. As BLS noted, “Because students are less likely to participate in the labor force, increases in school attendance at the secondary and college levels and, especially, increases in school attendance during the summer, significantly reduce the labor force participation rate of youths.”

So no matter who was president, and independent of the health of the economy, BLS projected in 2006 that labor force participation rates were going to go down.

But it’s also true that the decline has been even steeper than projected. For example, in that 2006 report, BLS projected the participation rate would decline to 64.5 percent in 2020. It’s already 1.7 percentage points below that in 2015.

According to an analysis by the Congressional Budget Office in February 2014, “[T]he unusually low rate of labor force participation in recent years is attributable to three principal factors: long-term trends, especially the aging of the population; temporary weakness in employment prospects and wages; and some longer-term factors attributable to the unusual aspects of the slow recovery of the labor market, including persistently low hiring rates.”

CBO estimated that between the end of 2007 (a year before Obama took office) and the end of 2013, about half of the decline in participation rates could be pegged to long-term demographic trends, about a third to “temporary weakness in employment prospects and wages,” and about a sixth to “unusual aspects of the slow recovery.”

CBO, November 2014: Of the 3 percentage-point decline in participation between the end of 2007 and the end of 2013, CBO estimates, about 1½ percentage points was the result of long-term trends, about 1 percentage point arose from temporary weakness in employment prospects and wages, and about one-half of a percentage point was attributable to unusual aspects of the slow recovery.

Similar conclusions were reached by the Federal Reserve Board, which wrote in September 2014 that “much – but not all – of the decline in the labor force participation rate since 2007 is structural in nature.”

A report from Shigeru Fujita at the Federal Reserve Bank of Philadelphia on Feb. 6, 2014,  also sought to tease out the relative impact of various causes for the declining labor force participation rate. Fujita concluded that about 65 percent of the decline between 2000 and the final quarter of 2013 was due to retirement and an increase in disability.

Fujita, Feb. 6, 2014: The increase in nonparticipation due to retirement has occurred only after around 2010, while nonparticipation due to disability has been steadily increasing over the past 13 years. Similarly, nonparticipation due to schooling has been steadily increasing and has been another major contributor to the secular decline in the participation rate since 2000.

The number of those who did not look for a job (thus being out of the labor force) even though they wanted a job increased significantly between the fourth quarter of 2007 and the end of 2011. This group of “discouraged workers” explains roughly 30 percent of the total decline (around 2 percentage points) in the participation rate over the same period. Between the first quarter of 2012 and the fourth quarter of 2013, the participation rate of this group has been roughly flat.

However, Fujita concluded, “Almost all of the decline (80 percent) in the participation rate since the first quarter of 2012 is accounted for by the increase in nonparticipation due to retirement. This implies that the decline in the unemployment rate since 2012 is not due to more discouraged workers dropping out of the labor force.”

Many economists believe that the steeply declining labor force participation rate is a reason for concern, as Priebus said, even as the declining unemployment rate seems to paint a rosier picture.

In a speech on Aug. 22, 2014, Federal Reserve Chair Janet Yellen concluded that “the labor market has improved significantly over the past year,” but said that metrics, including 19 labor market indicators, suggest “that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions.”

Still, Priebus’ comment, tying the entirety of the drop in the labor force participation rate to “the Obama economy,” ignores some of the demographic and structural forces that have been driving the participation rate down for more than a decade, and that are expected to continue to drive the rate down for decades to come.

— Robert Farley