On the Recent Decline in the Labor Force Participation Rate

Under our discussion of Friday’s employment report AB reader Sebastian Holsclaw asked a reasonable question as to whether the aging of the baby boomers might be putting a downward trend to both the labor force participation rate and the employment to population ratio. Well – Dean Baker came through for us:

While the unemployment rate stands at a relatively low 4.5 percent, the employment rate, the percentage of the population with jobs, has been inching lower. This is not a demographic story. The declining employment rate [EPOP] is being driven by prime age workers. The employment rate for workers ages 25 to 54 has fallen from 80.3 percent in January to 80.0 percent in June.

I promised to graph the labor force participation rate not only in terms of the overall rate, but also the rates for the young ones (16 to 24), the old ones (55 and up), and the rest of us (25 to 54). The graph goes back to 2000. From December 2000 to December 2003 – we witnessed the following:

The overall rate dropped from 67.0% to 66.0%
The rate for the 16 to 24 crowd plummeted from 65.9% to 60.5%
The rate for the 25 to 54 crowd fell from 83.9% to 82.8%
The rate for the 55 plus crowd rose from 32.6% to 36.0%

Then we had the recovery so from December 2003 to December 2006 – we witnessed the following:

The overall rate rose from 66.0% to 66.4%
The rate for the 16 to 24 crowd rose from 60.5% to 60.9%
The rate for the 25 to 54 crowd rose from 82.8% to 83.2%
The rate for the 55 plus crowd rose from 36.0% to 38.5%

Oh happy days – well, sort of. But let’s look at what Dean is telling us. From December 2006 to June 2007 – we witnessed the following:

The overall rate dropped from 66.4% to 66.1%
The rate for the 16 to 24 crowd fell from 60.9% to 59.6%
The rate for the 25 to 54 crowd fell from 83.2% to 82.9%
The rate for the 55 plus crowd rose from 38.5% to 38.6%

This isn’t looking good and is not entirely attributable to the elders retiring.