Labor Force Participation Rate (LFPR)

What do the data show?

The figure shows that labor force participation is more stable than the employment-to-population ratio because the latter is affected more by the business cycle and fluctuating short-term unemployment rates. However, there is also a clearer downward trend in labor force participation, which is now almost a percentage point below the late-1990s peak. The drop occurred in two phases, which align with the periods discussed above. The first, smaller drop occurred from 2001‒2004 (one-percentage point drop) and a second larger drop began with the Great Recession (two full percentage points). We are in the bottom quarter of countries on labor force participation and still declining. The countries just above us in the international comparison are Paraguay, Israel, and Greece.

What might explain these patterns?

Declining labor force participation may reflect some combination of declining interest, ability, and opportunities in work, as well as rising incomes, which increase demand for leisure. This trend may also be driven by men—women have seen increased or stable labor force participation. One likely reason is the decline in manufacturing jobs, which, since the mid-20th-century expansion of unionization, have been higher-paying jobs than the alternatives available to these workers. Once a person loses one of these jobs, it is generally difficult to find another of similar quality. Another reason may be that adults are getting married and having children less often and later in life and men have traditionally been the primary breadwinners. This means men now spend fewer of their prime working years being financially responsible for their families.

More adults—again, especially men—are not working and are also receiving income from disability insurance. This is happening even while work itself has been much safer and more accommodating to some disabilities. Declining mental and physical health and rising drug use may be part of the explanation. Also, while disability insurance programs are less generous overall in the US than in peer countries, some expanded coverage for mental health and some other ailments might partially explain why labor force participation in the US is declining relative to other countries.

For women, employment has generally been increasing or remaining steady. This reflects the decline in birth rates combined with changing social norms about women’s role in the labor force and declining occupational segregation by gender, which has increased women’s job opportunities. The rise in single-parent households (and unmarried adults generally), combined with the fact that women are typically the main caretakers of children, means that women now have a greater need to work outside the home than in the past.

The trend in labor force participation also tells us that the decline in the employment-to-population ratio we saw earlier is not due, for example, to an increase in the number of people who are seeking work but cannot find it. (This is further reinforced in our discussion of the long-term unemployment rate.)