THE WHITE HOUSE: This Is Why The Labour Force Participation Rate Keeps Falling

The labour force participation rate is one of the most buzzed about parts of the monthly jobs report.

The labour force participation rate, or the per cent of the civilian population over 15 that is either working or searching for work, has fallen from 65.8% in the first quarter of 2007 to 62.8% as of the most recent jobs report.

Many who are sceptical of any meaningful improvement in the labour market and the economy point to the declining labour force participation rate as evidence that, rather than try to find work, people are simply leaving the workforce.

Those who reject this notion often point to an ageing population.

Chiming in on this debate, The White House just released a huge report on the labour force participation rate.

The report attributes the drop to three main factors: the ageing population, a cyclical decline in the labour force, and “residual” factors.

The most interesting part of the White House’s report is the “residual” factors, which the White House say arise from trends that both pre-date the Financial Crisis and the ensuing recession’s unique severity.

The White House boils these factors down to two key elements: changes in workforce participation for prime-age men and women, and the post-Crisis recession’s severity and resulting labour dynamics.

The report says that since the mid-1950s, the labour force participation rate for prime-age men, (i.e. men between 25-54), has fallen steadily, while the participation rate for women has declined since the late 1990s, reversing a decades-long trend of increased participation by women through the 1970s and 80s.

The recession that followed the Financial Crisis lead to sharp deterioration in labour conditions, and the recovery out of recent recession has been notably slow.

This yielded the recently-retired scariest jobs chart.

But aside from these “residual” impacts on the participation rate, the ageing workforce dynamic is not a new issue.

A shrinking workforce due to an ageing population has been predicted by the CBO since before the Financial Crisis. The White House notes that in 2004, the CBO predicted that participation would drop 1% between 2007-2013 due to ageing.

This chart from the White House shows clearly how the workforce has aged in the last decade.

The “cyclical” factors weighing on the labour force participation rate, The White House says, are attributable to some workers deciding to defer looking for work until the economy improves.

This chart from The White House shows a number of alternative scenarios for the labour force participation rate, which seems destined to fall further.

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