Federal Reserve Survey Evaluates Changing Demographics in Labor Force

A paper written by Riccardo DiCecio, Kristie M. Engemann, Michael T. Owyang, and Christopher H.Wheeler for the Federal Reserve Bank of St. Louis reviews the evidence of changing labor force participation rates, estimates the trends in labor force participation over the past 50 years, and finds that aggregate participation has stabilized after a period of persistent increases. In examining the disparate labor force participation experiences of different demographic groups, they note that the aging of the baby-boom generation is is likely to lower aggregate labor force participation rates (LFPRs) for the next several decades.

As baby boomers enter successive age groups, their LFPR should fall dramatically. For instance, the 55 to 59 age group had an LFPR of 72 percent in 2006, and the 60 to 64 age group had an LFPR of approximately 53 percent. Among those 65 and older, the LFPR was just over 15 percent. These numbers, coupled with the increasing proportion of the U.S. population beyond their prime working age over the coming years, suggest that successive generations will be unable to compensate for the baby boomers’ exit from the labor force and U.S. labor supply will decline.

In conclusion, they write "the principal challenge in the presence of a declining LFPR, therefore,will be to find ways to enhance the productivity of the individuals that do choose to work."

Source: Federal Reserve Bank of St. Louis Review "Changing Trends in the Labor Force: A Survey" (January/February 2008)