Demographic versus Cyclical Influences on US Labor Force Participation

14 Pages Posted: 2 Aug 2014

See all articles by William Cline

William Cline

Economics International Inc; Peterson Institute for International Economics

Jared Nolan

Peterson Institute for International Economics

Date Written: July 31, 2014

Abstract

This paper applies time series analysis to distinguish between cyclical and demographic causes of the decline of the labor force participation rate. Some public discussions suggest that the decline of US unemployment from its 2009 peak of 10 percent to about 6 percent by mid-2014 grossly exaggerates recovery because most of the decline reflects the exit of discouraged workers from the labor force. This study finds instead that one-half to two-thirds of the decline in labor force participation by about 3 percentage points from late 2007 to early 2014 is attributable to aging of the population. Although about one-third is found attributable to the lagged influence of high, and especially long-term, unemployment, going forward the potential rebound in the participation rate from recovery is projected to be approximately offset by further aging of the population.

Keywords: labor force participation, aging, unemployment

JEL Classification: E52, J11, J21

Suggested Citation

Cline, William and Nolan, Jared, Demographic versus Cyclical Influences on US Labor Force Participation (July 31, 2014). Peterson Institute for International Economics Working Paper No. 14-4, Available at SSRN: https://ssrn.com/abstract=2474723 or http://dx.doi.org/10.2139/ssrn.2474723

William Cline (Contact Author)

Economics International Inc ( email )

9416 Friendship Station NW
Washington, DC
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Jared Nolan

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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