The Chicago Fed has released some data on the potential implications of a declining workforce on the U.S. economy. The labor force participation rate had fallen to 62.7% at the end of the third quarter of 2014, from about 66% at the beginning of the recession in December 2007.
What is being implied here is that there is additional slack in the labor market that may not be visible in the unemployment rate. The Fed believes that monetary policy should continue to be “highly accommodative,” considering what we might not know about the labor market.
However to fully understand where this decline might be coming from, it is important to first identify the trends that may have caused it. The labor force participation rose from the 1960s through the 1990s, but since 2000 it has been falling. The trends that were reflected in a declining labor force participation during this period include:
- Retiring baby boomers
- Declining labor force participation by males in the age range of 25 to 54
- Declining teen participation
- Increasing participation in adults aged 55 and over
ALSO READ: The Worst States for Black Americans
At the end of the third quarter in 2014, according to the Chicago Fed, the base estimate for labor force participation was 64.2%, which was roughly two percentage points under estimates at the end of 2007. Until the third quarter of 2013, the labor participation rate was highly correlated with both estimates and prevailing market conditions. However, the actual labor force participation rate has dropped even further due to slack in the labor force from the aforementioned trends.
An implication of these results is that when employment and output return to their long-run trends, growth will be slowed. In turn, a declining rate will result in less growth in hours worked per year, which translates into less output if productivity growth remains unchanged.
Considering the U.S. Census Bureau’s assumption of population growth, the results from the Chicago Fed would imply that trend payroll employment growth would fall to below 50,000 jobs per month later on in this decade.
ALSO READ: The Best and Worst Run States in America
Essential Tips for Investing (Sponsored)
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
