Demographics Drive Long-Term Declines in Labor Force Participation

by Jessica Nelson

May 22, 2018

In 2017, 63.6 percent of Oregonians over the age of 16 were in the labor force. Oregon’s labor force participation rate (LFPR) has edged back up over the last few years following slow and rather steady declines since the late 1990s. The longer-term decline in labor force participation is expected to continue over the next couple of decades as the U.S. population continues to age. Oregon has been bucking the long-term trend over these last couple of years as people have continued to migrate to the state in large numbers amid strong job growth and a very tight labor market.

Changes in labor force participation over time are largely driven by the demographic trends of an aging population. People over the age of 65 are much less likely to work than the prime-working age population (those ages 25 to 54). However, the labor force has been buoyed up recently by older workers who have stuck with the labor force at higher rates than in the recent past. Many people stalled on retirement plans after the Great Recession, as they waited for their savings and assets to recover their previous value. As people are living longer, there also might be different social trends and norms among the aging baby boomer population than seen among their parents. Many baby boomers are entrepreneurial, driven to chase their next goals and pet projects well into what we call retirement years. Affordable health care is also a major concern and some older workers continue to work as much for the benefits as continuing pay. 

Youth, on the other hand, are not looking for work as frequently as young people of past generations. Increased school attendance and more rigorous academic preparation are a couple of explanations for this trend. Young people spend more time on school work and academic achievement now than in the past. While continued job growth may pull some additional youth into the workforce with abundant opportunities, in the long term youth are likely to continue participating in the labor force at lower rates than a generation or two ago.

The prime working age population has also had some slight declines in labor force participation since the late 1990s, among both men and women. This is a shift that concerns many economists who state myriad possible causes for the decline of prime-age participation that range from the nation’s opioid addiction crisis, to the lack of opportunity and stability for people with a high school diploma or less education, to the challenges of low-wage employment combined with the increasing costs of child and elder care.

Participation in Oregon Is Similar to the Nation

Oregon’s labor force participation patterns largely mirror national trends. Participation rates increased through the late 1990s with the culmination of decades of increasing labor force participation among women. In the late 1990s, Oregon’s labor force participation rate was above the national rate. Oregon then swiftly lost ground in the early 2000s, leveled out and about matched the national trend during the last economic expansion, and then fell very quickly after the Great Recession.

The national trend has been a slow and uninterrupted decline since the recession, with labor force participation sticking at about the same level since 2014. In contrast, Oregon’s rate dropped a full 5 percentage points between 2010 and 2013. It then bounced back up in 2016 and 2017 as more people migrated to the state amid very strong economic expansion and a plethora of job opportunities. However, the uptick in the past couple of years is expected to fade and slow declines in labor force participation are expected to continue as the population ages. By 2026, Oregon’s labor force participation rate is projected to be about 62.1 percent, compared with 63.6 percent in 2017. Labor force participation in the U.S. is expected to drop to 61.0 percent by 2026 from the 2017 rate of 62.9 percent.
Women Haven’t Waited on the Sidelines in Years

As labor force participation surged to record highs in the late 1990s, a large source of new labor force entrants were women who hadn’t worked in the past. By the late 1990s women had closed much of the gap with male participation rates, as male participation was already declining throughout the 1980s. Since reaching its peak in the late 1990s, women’s participation has also trended downward, as the female population is aging to the same degree as the male population. Bringing more women into the labor force is a strategy often mentioned to grow the labor force, but the majority of women are already in the labor force and many women who aren’t currently in the labor force are already retired.

Improved social support for families may yet close some of the remaining gap between male and female labor force participation, and could potentially improve male participation as well as female participation. Family leave policies, paid sick-leave policies, and access to quality affordable child and elder care are among the many ideas floated to increase people’s availability to work.

The female and male experience of the last recession highlighted some interesting trends. Labor force participation among males dropped throughout the recession, from 72.3 percent in 2007 – just prior to the recession – to 65.9 percent in 2013. Female participation actually increased during the recession, moving from 59.5 percent in 2007 to 61.3 percent in 2011, before a sharper drop took hold and the female participation rate dropped to 55.6 percent in 2013. Since 2013 male and female participation in Oregon have followed the same trend.

The different trends during recession likely result from a couple of factors. First, the sectors that dropped jobs very rapidly during the recession, construction and manufacturing particularly, employ mostly male workers. So males felt the brunt of those heavy job losses. Also, some females joined the labor force in the midst of the recession as their spouses lost jobs and income.
Almost Everyone Who Wants a Job Has a Job

There’s a notion that continues to circulate no matter how tight the labor market becomes and how much job opportunity there is, that a certain portion of the population would join the labor force if only the quality of jobs were better; or if this, that, and the other condition were met. National data show this isn’t the case. Pretty much everyone who’s interested in being employed is already in a job.

So why is a sizeable portion of the population not in the labor force? I want to preface this reasoning with the statement that while down from peak levels of labor force participation, we really don’t have any way to understand the correct level of labor force participation. We can only analyze what’s happened in the past and posit trends for the future based on what we know. The peak labor force participation rates of the late 1990s are no more correct than today’s labor force participation rates; they’re simply a description of the past and the current situation.

That said, most people not in the labor force have their reasons for not participating. The Brookings Institution looked at the approximately 24 million men and women of prime working age who didn’t participate in the U.S. labor force in 2016. The largest group of prime-age nonparticipants are women with a high school education or less. Many of them are caregivers. After excluding caregivers, which accounted for about 40 percent of all prime-age nonparticipants, men and women reported the same reasons for not participating in the labor force. According to the Brookings Institution, three out of 10 nonparticipants report being ill or disabled, another 8 percent are students, and 5 percent are early retirees.

The total number of U.S. residents who aren’t in the labor force has increased. But most of these people aren’t interested in a job. Of the 95 million people not in the labor force, only 5.4 million (6%) desire to work. The share of those not in the labor force who want a job varies by age group. Among youth ages 16 to 24 and the prime working age population ages 25 to 54, almost 10 percent want a job. Among workers ages 55 and over the share is far lower, with just 3 percent of those not in the labor force desiring work.
Understanding How Age Affects Participation

The most drastic changes in labor force participation have occurred among the oldest and the youngest workers. While a lot of attention is paid to the “why” behind reduced prime-age participation, the rising number of people not in the labor force over the last two decades is largely due to more retirements and fewer teenagers and young adults participating in the labor force.

Overall, labor force participation has dropped 5 percentage points in the past two decades. Teens have seen the largest decline. In 1997 three out of five teens ages 16 to 19 were in the labor force and by 2017 that had dropped to two out of five. Participation among young adult workers ages 20 to 24 also dropped, but by just 5 percentage points. Young adults are far more likely to be working than teens and that gap has grown over time.

The prime working age population has seen some downward drift in participation. Declines haven’t been as large for these age groups; each has fallen by 2 percentage points to 4 percentage points over the past two decades. There’s a reason it’s called the prime working age population. These groups have the highest level of labor force participation. More than four out of five Oregonians ages 25 to 54 are in the labor force.
Older workers have increased their labor force participation – the only age groups to do so over this 20-year time period. Participation among workers ages 55 to 64 has increased by 2 percentage points since 1997. Participation among workers ages 65 and over has seen rapid growth – in 1997 just 11 percent of Oregonians age 65 and over were in the labor force. By 2017 that had surged to 19 percent. The increase is happening as the size of the older worker population is also increasing, meaning far more older workers in jobs today than two decades ago.

For the most part, the long-term decline in labor force participation is the result of demographic trends that began decades ago. While more attention might be paid to participation among the prime working age population, most of the decline is due to increased retirements and fewer youth seeking work. As these trends are expected to continue, further declines in labor force participation are anticipated in the years to come.

 


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