The Labor Force Participation Rate: An Examination Of The Determinants Of Its Recent Precipitous Decline

Abstract

The Labor Force Participation Rate (LFPR) is defined as those Americans in the labor force, i.e. above the age of sixteen, below retirement age, who are either actively employed or actively seeking employment. From 1950 until 1998 it rose from 59.2% to 67.2%. Given the near doubling of the U.S. population, its impact on our economy was enormous. However, since 1998 the LFPR has declined steadily to 63.3%. Parallel to this decline, we have seen a polarization of both wealth and income in the U.S. Many economists have examined both trends – the decline of LFPR and inequality – and have put forth a variety of determinants. These include technology and globalization – a decline or “hollowing out” of the middle class, if you will. Also included are the demographics of an ageing society, and the increased racial and gender participation, but also a workforce that has become only marginally prepared by today’s educational institutions. Another class of determinants is the welfare “safety net” at both the Federal and state levels, including extended unemployment benefits, disability payments and other subsidies. The authors examine each class of determinants, including whether their aspects are cyclical, structural or even part of an ominous trend for our economy.