Labor Force Participation: Recent Developments and Future Prospects

Since 2007, the labor force participation rate has fallen from about 66 percent to about 63 percent. The sources of this decline have been widely debated among academics and policymakers, with some arguing that the participation rate is depressed due to weak labor demand while others argue that the decline was inevitable due to structural forces such as the aging of the population. In this paper, we use a variety of approaches to assess reasons for the decline in participation. Although these approaches yield somewhat different estimates of the extent to which the recent decline in participation reflects cyclical weakness rather than structural factors, our overall assessment is that much of the decline is structural in nature. As a result, while we believe some of the participation rate’s current low level is indicative of labor market slack, we do not expect the rate to substantially increase from current levels as labor market conditions continue to improve.