About 40 percent of the decline in the U.S. labor force participation rate since 2000 can be explained by demographic factors such as the retirement of the baby boomers, Federal Reserve Bank of Atlanta Research Director David Altig said in an online commentary.
The decline in the labor force has been “influenced by a confounding mix of demographic change and other behavioral changes that nobody seems to understand,” Altig wrote in an online posting on his Macroblog site.
Federal Reserve Chairman Ben S. Bernanke says the decline reflects weakness in the economy that’s causing discouraged Americans to leave the workforce. It is “very important” to look not just at the unemployment rate, which “no doubt understates the weakness of the labor market in some broad sense,” Bernanke said in February.
The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6 percent last month, the lowest since December 1981, from 63.8 percent the month before. The unemployment rate fell last month to a three- year low of 8.1 percent as people left the labor force.
Altig said that 0.9 percentage points of the decline in the participation rate since the beginning of the last recession in December 2007 can be explained by demographic trends. Subtracting those “still leaves 1.5 percentage points to be explained” by the weak economy.
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