7 February 2011 – Chart of the Week

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Chart of the Week: Boomers and the Labor Participation Rate

The dramatic drop in the participation rate of Americans in the US economy shows that its labor force is getting smaller. Some observers argue that many workers are simply giving up looking for a job and that the recent decline in the unemployment rate is an illusion. Rather than cyclical weakness, however, there could be a deeper demographic shift that is gathering pace: blame the boomers.

Perhaps the better question to pose is why the participation rate went up so high in the first place. As a straightforward measure of the percentage of adults who are working or looking for work, the participation rate was as low as 58.4% in the early 1960s (the blue line in the chart). It then went up steadily through several business cycles, peaking at 67.3% in early 2000 and has been drifting down ever since.

Part of the reason for the earlier surge in the participation rate is the entry of the baby boomers into the labor force. The first boomers turned 15 in 1961 and set in motion a decades-long shift in the economy. The share of the population aged 15 to 55 (the red line) went up from 42.1% in the early 1960s to 50.6% by the mid-1990s.

Those first boomers turned 55 in 2001, just before the peak in the participation rate. Indeed, over the past decade, there has been a lock-step decline in the labor force participation rate and the share of the adult population in their prime working years. Rather than representing a cyclical overhang on the labor market, the drop in the participation rate could continue for some time to come as the baby boomers retire from the labor force.

Within this secular trend, some boomers without jobs are not ready to retire and they are accounting for an increasing share of the unemployed. In the mid 1990s, 6.7% of unemployed Americans were 55 or older; today that share is already 15.6%. Even as the business cycle expansion continues to gain momentum, the aging of the unemployed might be a permanent feature of the US labor market.

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