Research: The Labor Force Participation Rate Will Stay Flat Through 2015

robyedrian/statigr.amI've written frequently about the participation rate (the percent of the civilian noninstitutional population in the labor force). A few posts: Understanding the Decline in the Participation Rate, Update: Further Discussion on Labor Force Participation Rate, Merrill Lynch on Labor Force Participation Rate, Labor Force Participation Rate Research

The participation rate was expected to decline for structural reasons even before the great recession started (baby boomers retiring, younger Americans staying in school longer, etc.). A key question is how much of the recent decline in the participation rate was due to long term trends, and how much was cyclical (economic weakness)?

Here is some research from Macroeconomic Advisers: Where’s Labor Force Participation Heading?

CR Note: A significant portion of the decline in the unemployment rate from 10.0% in October 2009 to 7.6% in June 2013 was related to a decline in the participation rate from 65.0% in Oct 2009 to 63.5% in June 2013. If the participation rate had held steady, the unemployment rate would be 9.7% (assuming an increase in the participation rate with the same employment level).

Now the participation rate is forecast to mostly move sideways - or maybe even increase a little in the short term - so we probably shouldn't expect a decline in the participation rate to help push down the unemployment rate over the next year or two. Instead, and decline in the unemployment rate will probably because of an increase in employment.

Longer term the participation rate will probably continue to decline until 2030 or 2040. I expect the rate to fall from the current 63.4% to around 60% in 2030 based on recent trends and demographics.