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Labor Participation Among Men and Teens

Posted at NAR Research by NAR Research
Sep. 15, 2010
Tagged with: labor participation

 

Did you know: Labor Participation Among Men and Teens

September 15, 2010

By Selma Lewis, Research Economist

 

Did you know: Labor participation among prime-age men and teenagers has steadily decreased over the past several decades?

 

An Economic Letter from the Federal Reserve Board of San Francisco examines how uncertainty about who will be active in the labor force has important implications for the path of unemployment.

This uncertainty comes from hard-to-predict behavioral patterns of teenagers, prime-age men, and older workers that make forecasting near-term changes in the labor force participation rate difficult. Figure above plots the historical labor force participation rates among different age groups of workers.

To get a sense of how small changes in labor force participation can have large impacts on the unemployment rate, the authors showed several numbers: U.S. population growth averages about 1% per year. Assuming no change in labor force participation, the economy would need to create about 100,000 jobs per month on net to keep the unemployment rate at its August 2010 value of 9.6%. However, changes in participation can make a huge difference. The higher the participation rate, the greater the number of jobs needed to keep the unemployment rate down. If you look at the Congressional Budget Office forecasts, it expects the unemployment rate to decline to 7.96% in 2012 and participation to tick up a notch to 64.8%. This implies average job growth of about 227,000 per month over the next two years. But if the CBO participation forecast is 0.1 percentage point too low, the economy will need to create 237,000 jobs, an additional 10,000 per month, in order to reach a 7.96% unemployment rate in June 2012.

However, projections for the labor force participation rate in 2012 vary and range from 64.6% (SSA 2009) to 65.5% (BLS 2010), which is a very substantial difference and can affect how many jobs are needed to reduce the current unemployment rate.

Thus, if the SSA is right and labor force participation falls to 64.6% in 2012, we will need to create an average of 208,000 jobs per month over the over the 22 months beginning in September 2010 to bring the unemployment rate down to 8% in June 2012. But if the labor force participation rate rises to 65.5%, as the BLS predicts, we will need to add 294,000 jobs per month in order to reach that level.

The labor force participation rate is highly uncertain because the trends are different among separate demographic groups. The participation rate of teenagers has fallen steadily since the late 1970s. The decline largely reflects increased school enrollment and greater intensity with which teenagers pursue their studies, illustrated by declining participation among those attending school. The percentage of teenagers enrolled in school but not participating in the labor force has gone from about 40% to almost 60% over the past 25 years. Since December 2007, 7% of teenagers—more than a million individuals—have withdrawn from the labor force. Decreased student participation accounted for much of the decline.

The labor force participation of men age 25 to 54 has also declined steadily in recent decades. At the end of 2009, it reached 88.9%, almost 9 percentage points below its peak in the mid-1950s. Many prime-age men who leave the labor force during downturns stay out even after the economy recovers, although not to the same extent as teenagers. Labor force participation among prime-age men has fallen for two main reasons: increased access to Social Security disability benefits and decreased demand for less-skilled workers.

On the other hand, labor force participation of workers 55 and over consistently fell from the 1950s through the 1990s, when Social Security, pension, and retiree health benefits increased substantially and conditions were generally favorable for early retirement. However, in the 1990s, as the value of those retirement programs eroded, older workers reversed the downward trend. Since then, their labor force participation rate has risen steadily, even through cyclical downturns.

Source: Joyce Kwok, Mary Daly, And Bart Hobijn. Labor Force Participation and the Future Path
of Unemployment, FRBSF Economic Letter 2010-27 September 13, 2010
http://www.frbsf.org/publications/economics/letter/2010/el2010-27.html

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