A Closer Look

Labor Force Participation in US – The CBO’s projections: a drop of 3.7 percentage points over 30 years

What Are CBO’s Current Projections of Labor Force Participation?

CBO projects that the rate of labor force participation (that is, the number of people who are either working or seeking work as a share of the civilian noninstitutionalized population age 16 or older) will decline from 62.8 percent in 2017 to 61.0 percent in 2027 and to 59.2 percent in 2047—constituting a drop of 3.7 percentage points over 30 years (see the figure below). The projected decline in the participation rate is faster for men than for women.

capture-decran-2017-01-15-a-09-59-52

The continued retirement of the baby-boom generation is the most important factor driving down the overall participation rate. To assess the importance of that factor, CBO has calculated what the participation rate would be if the age-and-sex composition of the population remained the same as what it will be in 2017. With that adjustment, the projected participation rate would rise slightly between 2017 and 2027 and would end up at the same level in 2047 as it will be in 2017 (see the figure below). Because that calculation includes an adjustment for age and sex but the sex composition of the population is projected to change only slightly, the analysis implies that the effect of the aging of the population is about equal to the difference between the unadjusted and adjusted rates. Therefore, aging essentially accounts for the decline of 3.7 percentage points over the next 30 years.

For men, CBO anticipates a steady decline in the age-adjusted participation rate over the 30-year projection period. For women, the agency projects an increase over the first 10 years of the period and then a relatively steady rate thereafter.

capture-decran-2017-01-15-a-09-59-59

The flattening of the overall participation rate over the next 30 years, with a constant age-and-sex composition assumed, reflects the offsetting effects of several trends, some that push the participation rate down and others that push it up. CBO projects continued downward pressure on the participation rate from three trends. First, the members of subsequent generations, who are replacing baby boomers in the labor force, tend to participate in the labor force at lower rates.

Second, the share of people receiving disability insurance benefits is generally projected to continue increasing, and people who receive such benefits are less likely to participate in the labor force. Third, the marriage rate is projected to continue declining, especially among men, and unmarried men tend to participate in the labor force at lower rates than married men.

CBO expects that those forces will be mostly offset by three trends working in the opposite direction. First, the population is becoming more educated, and workers with more education tend to participate in the labor force at higher rates than do people with less education. Second, the racial and ethnic composition of the population is changing in ways that increase participation in the labor force. Like the Census Bureau, CBO expects Hispanics to make up an increasing share of the population, which would increase the overall labor force participation rate, and expects non-Hispanic whites to make up a diminishing share, which would decrease the participation rate—resulting, on net, in an increase. Third, increasing longevity is expected to lead people to work longer.

Chosen excerpts by Job Market Monitor. Read the whole story at CBO’s Long-Term Projections of Labor Force Participation | Congressional Budget Office

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