Labor Force Decline Driven by Young, Middle-Aged Workers

Over the past seven years, the civilian labor force participation rate has steadily declined. As of February, the rate stood at 63.0 percent, the same level as 1978 (before the economic boom and movement of women into the labor force during the 1980s).

The labor force decline

is driven by people in the prime years of their careers. The labor force participation rate for those aged 25 – 54 has dropped 2 full percentage points since 2007, from 83 percent to 81 percent. Had the labor force participation rate for this group stayed steady, an additional 2.5 million individuals would be attached to the labor force.

People 65 years and older continue to work. For this group, labor force participation has risen a full 3 percentage points over the past 7 years, from 16 percent to 19 percent. Though part of this increase likely comes from increased life expectancies and improved health, many people lost their retirement savings during the financial crisis and now must delay retirement. 

Because of the Affordable Care Act’s employment effects, an estimated two and a half million people will leave the labor force, according to the Congressional Budget Office.

Unfortunately, policies which could turn around these troubling trends, such as fundamental tax reform, regulatory reform, entitlement reform, and immigration reform, are most likely not politically feasible until after the 2014 elections. If the United States is to return to strong economic growth, Americans need to return to work.