Falling Labor Participation Rate: Not All Discouragement

Bob Johnson: This week's Chart of the Week is the labor participation rate, a flash point in the discussion of the health of the labor market. This report simply measures the number of people who have a job or are looking for a job, compared with that age population. That number has gone from 59% in the 1950s all the way up to 67%, when it peaked in the year 2000. It has been on a downhill slope ever since and stands at 63%.

That number is being driven by many factors. Most people are worried about the number because it indicates a lot of discouraged workers--that there are fewer people looking for work because they can't find it. Well, that's only part of the story. There are two other factors in the number.

One is, at the low age groups, people are participating less. I'm talking 16- to 19-year-olds. And that's an age group where I really don't want them participating. I want them in school. We've seen a dramatic drop-off in the number of high school drop-outs, and the participation rate has also fallen from 55% into the low-30% range for this age group, depressing the whole participation rate.

Then, at the other end of the scale, we have older people growing much faster as a percentage of the population. The over-65 [group] has gone from 16% to 19% of the population. Why is that important? Because everybody, all the way up to [age] 90 and above, are counted as potential participants in the labor force. This group has grown really fast and they've got a very low participation rate, so they bring down the overall ratio.

Given the demographic trends, the Bureau of Labor Statistics predicts that this ratio will drop all the way down to 61% or 62% in the next 10 years as demographics continue to play out.