The probability that an individual participates in the labor force declines precipitously beyond age 50. This feature of labor supply suggests that ongoing shifts in the age distribution of the population will put substantial downward pressure on the aggregate labor force participation rate. However, the aggregate rate is also influenced by trends within age groups. Neglecting to model both within-group influences and shifting population shares will doom any estimate of aggregate labor supply. We develop a model that identifies birth cohorts' propensities to participate, uses these propensities to derive age-specific trends in participation rates, and explicitly incorporates the influence of shifting population shares in estimating aggregate labor force participation.

Census Bureau estimates of annual interstate migration indicate that internal migration in the U.S. has declined steadily since the 1950s. However, as this paper shows, that decline is largely due to the reduction in the relative size of the military.

Output growth is determined by growth in labor productivity and growth in labor input. Over the past two decades, technological developments have changed how many economists think about growth in labor productivity. However, in the coming decades, the aging of the population will change how economists think about the growth in labor input in the United States. As the oldest baby boomers born in 1946 turned 50, then 55, and then 60, an important economic change has slowly surfaced: these people have become less likely to participate in the labor force. While this shift was obscured by a labor market slump in 2002, the aging of the American population began to put downward pressure on aggregate labor supply, marking the start of what is likely to be a sharp deceleration in labor input that will last another half-century.

The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle, and William Wascher The labor force participation rate is defined as the percentage of the noninstitutional working-age population (those aged 16 and over) reporting themselves as either working or actively looking for work. This statistic is constructed from data collected as part of the Current Population Survey and published monthly by the Bureau of Labor Statistics (BLS). Its longer-run trend is an important determinant of the supply of workers to the U.S. economy. For much of the past four decades, the participation rate has trended upward, rising from less than 60 percent in the early 1960s to more than 67 percent by the late 1990s. However, after peaking at 67.3 percent in the first quarter of 2000, the participation rate fell steadily to under 66 percent by early 2005 and has edged up only to just above 66 percent since then. As figure 1 shows, such a decline in labor force participation is nearly unprecedented in the postwar experience. Although the upward trend between the mid-1960s and the mid-1990s was occasionally interrupted by relatively brief periods of little change, few episodes of persistent outright decline are evident in the data. Indeed, even after the upward trend from the earlier period is removed (using, for example, a Hodrick-Prescott filter [End Page 69] or a linear spline, not shown), the decline in the participation rate in recent years seems large and unusually protracted by historical standards. Click for larger view View full resolution Figure 1. Aggregate Labor Force Participation Rate, 1948-2005a A key question is whether the decline in the participation rate since 2000 primarily reflects cyclical forces-the tendency for individuals to withdraw from the labor force during periods of reduced job opportunities-or longer-lasting structural influences. Indeed, the answer to this question bears importantly on the interpretation of recent macroeconomic developments. If the weakness in participation since 2000 is largely cyclical in nature, the current unemployment rate could be significantly understating the degree of slack in the labor market-and perhaps overstating the potential upside pressures on wage and price inflation; moreover, the outlook for longer-term economic growth would be buoyed by a higher labor force participation trend.1 If instead much of the decline results from structural developments in the labor market, the unemployment rate may be giving the appropriate signal of current economic slack, and the implications for potential economic growth would be less favorable. [End Page 70] From one standpoint the cyclical story seems quite reasonable. The downturn in the participation rate lines up closely with the weakening in overall economic activity that began in early 2001. With the exception of those over age 55, it occurred across demographic groups and coincided with a deterioration of households' perceptions of labor market conditions. Moreover, the failure of the participation rate to rebound after the 2001 recession could be a consequence of unusually weak labor demand in the subsequent recovery. However, this evidence is by no means definitive, and the persistence of a low participation rate during the recent period of more rapid employment gains has increasingly led observers to question whether other factors might be at work as well.2 This paper undertakes a comprehensive review of recent developments in labor force participation and attempts to parse the recent decline into its cyclical and structural components. After a brief overview of the data, we examine the effects of changing demographics on the aggregate participation rate and review the facts and past research on a number of other potential influences, including trends in human capital accumulation, relative wages, family structure, and income support programs. We then use a cohort-based model of the participation rate that attempts to account for these factors to estimate and project forward the underlying trend in the participation rate. Next we supplement the model-based results with analyses of recent changes in labor force participation using state-level data, gross labor force flows, and information on the incidence and duration of labor force attachment. Finally, we report briefly on...

This paper presents estimates of the impact of Social Security's Delayed Retirement Credit on the employment rates of older men. The credit raises lifetime social security benefit payments for recipients who delay receiving benefits after age 65 and offers a rare and important test of whether labor supply incentives built in to the program can promote work at older ages. The results suggest that the increased incentives raised employment among workers over age 65. In addition, the recent increases in social security's Normal Retirement Age also appear to be pushing up labor supply.

Most prime-age married couples in the U.S. today have two labor force participants. Migration decisions are more complicated for two-earner couples than for one-earner couples because any gain from moving that accrues to one spouse must be great enough to offset any loss to the other spouse. This paper estimates the extent to which internal migration is depressed by rising earnings equality among spouses. The results indicate that couples' migration propensities are substantially lower the more equal spouses' labor incomes.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 changed welfare programs by increasing state income maintenance programs’ emphasis on employment. Following reform, several states paid reduced welfare benefits to single mothers who resided in their parents’ homes, compared to those single mothers who lived independently. This paper evaluates whether the benefit reductions lower the probability of intergenerational cohabitation or the employment of single mothers’ recognizing that family support might facilitate single mothers’ labor market attachment. The results suggest that family cohabitation penalties reduce the likelihood single mothers live in their parents’ households and work. Despite several empirical limitations, the results offer evidence that intergenerational living arrangements positively influence employment.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 required states to increase welfare recipient employment and participation in welfare-to-work programs. These work requirements are sometimes credited for bringing about large employment increases among single mothers. However, this paper finds that employment among single mothers who were exempted from work requirements because they had young children rose as much as that of other single mothers. The results imply that the employment gains among single mothers in the late 1990s were due to economic growth and other policy changes rather than to the work requirements.

Following welfare reform in the mid-1990s, welfare caseloads declined by more than 2 million families—coinciding with a dramatic rise in single mothers' employment, the program's target demographic group. Moreover, despite the recent recession and sluggish labor market, neither the employment of single mothers nor caseloads have returned to the levels of a decade ago, implying real structural change. We analyze the employment behavior of single mothers following welfare reform by estimating models of the transitions of single mothers through three labor force states: employment, unemployment, and out of the labor force. This allows us to draw a richer picture of how TANF changed the labor market than was previously available. Our results indicate that TANF not only raised the level of employment, consistent with other studies, but TANF also markedly changed the search behavior of single mothers and transitions through unemployment—enough to raise the aggregate unemployment and labor force participation rates. We also find that welfare leavers under TANF are a little less likely to be employed. Together this evidence suggests that while many individuals in the welfare-eligible population have become employed, many are spending considerably more time searching for work.