White House Says Shrinking Labor Force Hurting Growth

The declining number of people in the U.S. who are part of the labor force is a drag on the economy and the government should enact policies that will boost the number of workers, including reworking immigration laws, a White House report says.

“In the long run, the growth rate of the labor force underpins the growth rate of employment, which, along with productivity growth, is a key determinant of the growth rate” of the economy, according to the White House Council of Economic Advisers, led by Jason Furman.

The report issued today, titled “The Labor Force Participation Rate Since 2007: Causes and Policy Implications,” suggests government action is needed because of the large number of people who have dropped out of the workforce.

That so-called labor force participation rate, the percentage of people employed or looking for a job, has fallen and is hovering around an almost four-decade low. The reasons include the retirement of “baby boomers” and the large number of workers whose skills are outdated or who dropped out of the work force after the worst recession since the Great Depression.

Economists use the labor participation rate as a gauge to measure the health of the economy. The report spells out “policy measures that can boost participation and in so doing, expand the economy’s long-run growth potential.”

The administration is using the 53-page report to help promote a variety of legislative initiatives, many of them stalled on Congress.

Immigration Laws

An overhaul of immigration laws would increase the labor force participation rate and thus “counteract the labor force effects of an aging population and spur economic growth,” the report said. Immigration legislation to give undocumented workers a path to citizenship could add 6 million people, or five percent, to the workforce by 2023, according to the nonpartisan Congressional Budget Office

That would provide “a range of other economic benefits such as increasing the GDP, lowering budget deficits and improving Social Security solvency,” today’s report argues.

Social Security is projected to become insolvent in 2032. Investments in public works, such as roads, bridges and transit program also would spur more job creation, raise wages and bring more people into the labor market, Furman said in a commentary July 5.

Other examples of administration-backed legislation include renewing the Export-Import Bank, cutting red tape to speed construction public works projects, establishing experimental hubs for manufacturing and adopting greater workplace flexibility.

Before it's here, it's on the Bloomberg Terminal.