The U.S. Labor Force

Since the depths of the recession, more Americans are working and a steadily shrinking number are officially unemployed. That’s good! But there’s another category: People who are neither working nor unemployed. They’re just not looking for a job. That number has started to shrink, but not by as much as economists expected. So what’s keeping discouraged workers — people who have given up looking for a job — on the sidelines? It’s not just an academic debate — fewer people competing for each job mean wages will rise. That would be welcome, but too much wage pressure could push inflation above the U.S. Federal Reserve’s target. This is much on the mind of Fed officials as they ponder how quickly to raise interest rates.

The labor force participation rate — the share of Americans with a job or trying to find one — fell steeply when the recession began and stayed unusually low. By September 2015, participation had sunk to a four-decade low of 62.4 percent. A year later, enough workers had streamed back into the labor force to boost participation to 62.9 percent. The increases, however, come against a longer-term pull shrinking the labor force: the aging of the baby boom generation. Separating one trend from another can be tricky. One U.S. Federal Reserve paper credited retirements for as much as 80 percent of the decrease in labor force participation during the two years ending in 2013.