Drop in U.S. workforce
due to aging, not weak economy: Fed paper
Send a link to a friend
[September 12, 2014] (Reuters)
- The drop in U.S.
workforce participation since the financial crisis is
largely due to the aging of the American population and
will not reverse even if labor markets improve, a paper
to be presented at a Brookings Institution conference on
The findings, by a group of economists at the Federal Reserve and
the Cleveland Fed, add to an ongoing debate over the degree of labor
market slack in the U.S. economy, a key question for Fed
policymakers as they head into a pivotal meeting next week.
Fed Chair Janet Yellen sees the decline in labor force
participation, to levels not seen since the 1970s, as driven at
least in part by discouraged workers who drop out of the job hunt.
Those workers could be drawn back into the labor force as the
economy picks up steam, putting upward pressure on the unemployment
rate, and giving the Fed room to keep monetary policy easy without
fear of stoking undue wage increases and inflation.
The authors of the Brookings paper downplay the role of discouraged
workers in the decline, blaming it on "ongoing structural influences
that are pushing down the participation rate rather than a
pronounced cyclical weakness related to potential
jobseekers’discouragement about the weak state of the labor market,"
they wrote. "We see further declines in the aggregate labor force
participation rate as the most likely outcome."
Still, the authors think that part of the workforce participation
decline - at least a quarter of a percentage point and possibly as
much as a percentage point - could be attributed to a weak economy.
And while it may not seem like very much, even a small rise in the
participation rate could give the Fed important breathing room as it
heads towards a decision, probably next year, on raising benchmark
[to top of second column]
An online calculator maintained by the Atlanta Fed shows that if the
participation rate stays steady and job gains track the average seen
over the past 12 months, the unemployment rate could reach a healthy
5.4 percent in just 10 months.
But factor in a gain in the participation rate of just 0.2
percentage point, to 63 percent, and the same decline would take 14
(Reporting by Ann Saphir; Editing by Bernard Orr)
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.