One of the biggest challenges facing America’s economy is low workforce participation. While the latest jobs report showed the private sector adding over 150,000 jobs for seven consecutive months, the labor force participation rate keeps declining. The civilian labor force participation rate has dipped to 62.8%, the lowest level in nearly 30 years. Excluding the unemployed who are looking for work, the share of the population that is actually employed is an even lower 59.7%. Far from a temporary blip, the decline is projected to continue. A recent Federal Reserve study predicts labor force participation will drop to 61% by 2022 – a low not seen since the 1970s.
The drop in labor force participation rates concerns economists for several reasons. First, it depresses economic growth, which is already at anemic levels of 0.5%. Second, it puts pressure on the federal budget at a time when we are facing historic fiscal constraints. The less workers there are, the more the tax base shrinks. And third, any time out of the labor force impacts workers’ future earnings trajectories should they return to work, due to lost training and on-the-job experience.
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