Labor Force Participation Rate Update

Calculated Risk

Tracking the participation rate for various age groups monthly is a little like watching grass grow, but the trends are important.

If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year – and the participation rate stays flat – the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.8%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

That is why forecasting the participation rate is important – and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place (and can be very confusing – and I’m guilty of using different numbers).

Click on graph for larger image in graph gallery.

Here is a repeat of the graph showing the participation rate, unemployment rate, and employment-to-population ratio.

The Labor Force Participation Rate was unchanged at 64.2% in March (blue line). This is the lowest level since the early ’80s. This is the percentage of the working age population in the labor force.

Here is a look at some the long term trends (updating graphs through March 2011):

This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group – the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out. The participation rate for men has decreased from the high 90s to 88.7% in March 2011. (down slightly from February)

There will probably be some “bounce back” for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

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