Recent U.S. Labor Force Dynamics: Reversible or not?

By Ravi Balakrishnan, Mai Dao, Juan Sole, Jeremy Zook

April 2, 2015

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Format: Chicago

Ravi Balakrishnan, Mai Dao, Juan Sole, and Jeremy Zook. Recent U.S. Labor Force Dynamics: Reversible or not?, (USA: International Monetary Fund, 2015) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The U.S. labor force participation rate (LFPR) fell dramatically following the Great Recession and has yet to start recovering. A key question is how much of the post-2007 decline is reversible, something which is central to the policy debate. The key finding of this paper is that while around ¼–? of the post-2007 decline is reversible, the LFPR will continue to decline given population aging. This paper’s measure of the “employment gap” also suggests that labor market slack remains and will only decline gradually, pointing to a still important role for stimulative macro-economic policies to help reach full employment. In addition, given the continued downward pressure on the LFPR, labor supply measures will be an essential component of the strategy to boost potential growth. Finally, stimulative macroeconomic and labor supply policies should also help reduce the scope for further hysteresis effects to develop (e.g., loss of skills, discouragement).

Subject: Aging, Labor, Labor markets, Population and demographics, Unemployment

Keywords: Age group, Aggregate LFPR picture, Aging, Employment gap, Global, Labor force, Labor force participation, Labor market, Labor markets, LFPR change, LFPR decline, LFPR dynamics, Macro-economic policy, Participation rate shift, Regression analysis, Trend LFPR, Unemployment, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/076
Stock No:

WPIEA2015076
ISBN:

9781484315620
ISSN:

1018-5941

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