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Updating the impact of ageing labour force on US participation rates

Yesterday, I discussed the latest US labour market data, including the 0.4 percentage point drop in the participation rate, which is a large decline for a month. Whether that is subject to revision or not remains to be seen. The monthly data fluctuates quite a bit due to sampling errors and uncertainties regarding population benchmarks. It is clear that during the recession, many workers opted to stop searching for work because there was a dearth of jobs available. As a result, national statistics offices considered these workers to have stopped ‘participating’ and classified them as being ‘not in the labour force’, which had had the effect of attenuating the official estimates of unemployment and unemployment rates. These discouraged workers are considered to be in hidden unemployment. But the participation rates are also influenced by compositional shifts (changing shares) of the different demographic age groups in the working age population. In most nations, the population is shifting towards older workers who have lower participation rates. Thus some of the decline in the total participation rate could simply be an averaging issue. This blog updates my previous estimates for the US. The aggregate participation rate has been in decline since the beginning of this century and the compositional shifts account for around 73 per cent of the decline over that time.

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