Labor-force participation hits a new 36-year low

October 06, 2014


Steve Goldstein | October 6, 2014 | MarketWatch

WASHINGTON (MarketWatch) — The last time fewer working-age Americans participated in the labor force, the U.S. Senate started broadcasting their proceedings. On the radio.

The participation rate in September fell a tenth to 62.7%, marking the lowest level since February 1978.

The falling participation rate has been a hotly debated topic for some time, but the puzzle is even more confusing given the string of solid jobs gains and the continued drop in the unemployment rate.

Part of the story of course is simply demographic. A Federal Reserve paper puts half of the decline to the aging of the baby-boom generation. While there are more older workers than ever, due to increased longevity, better health, and the need to work due to destroyed wealth from the Great Recession, this cohort is still retiring in great numbers.

That same Federal Reserve paper put as much as 1 percentage point of the decline from its 2000 peak of 67.3% due to cyclical factors — that is, people who previously wanted to work and now are discouraged.

Alexandra Estiot of BNP Paribas notes another negative factor — the number of Americans who want to work more hours but are unable to do so.

Be prepared for similar headlines in years to come, no matter the progress on the economy.

The Fed paper estimates a 2.5 percentage point drag over the next 10 years just on baby-boomer retirement.

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