Juhn-Potter labor force participation JEP

Juhn-Potter labor force participation JEP - Journal of...

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Changes in Labor Force Participation in the United States Chinhui Juhn and Simon Potter T he labor force participation rate in the United States increased almost continuously for two-and-a-half decades after the mid-1960s, pausing only brieFy during economic downturns, as shown in ±igure 1, where the shaded regions signify recessions. The pace of growth slowed considerably during the 1990s, however, and after reaching a record high of 67.3 percent in the ²rst quarter of 2000, participation had declined by 1.5 percentage points by 2005. This paper reviews the social and demographic trends that contributed to the move- ments in the labor force participation rate in the second half of the twentieth century. It also examines the manner in which developments in the 2000s reFect a break from past trends. Understanding changes in the labor force participation rate is important for a number of reasons. The share of the adult population that participates in the labor force—either by working or by looking for work—determines the size of the labor force, which in turn is central to constructing a measure of potential GDP and for making projections of future GDP growth. In the 1970s and the 1980s, for example, the entry of married women greatly expanded the labor force and potential GDP. As the “baby boom” generation—people born between 1946 and 1964—approach retirement age, how will the size of the U.S. labor force evolve? Will labor market participation of married women continue to grow over the next several decades? Will older workers continue in the labor force until later ages? As a related issue, much of the discussion regarding the solvency of Social Security hinges on projec- tions of the labor force participation rate. The Social Security Trustees are project- ing that the participation rate of older people will increase and that the overall y Chinhui Juhn is Professor of Economics, University of Houston, Houston, Texas. Simon Potter is Economist, Federal Reserve Bank of New York, New York City, New York. Their e-mail addresses are ^ [email protected] & and ^ [email protected] & , respectively. Journal of Economic Perspectives—Volume 20, Number 3—Summer 2006—Pages 27–46
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labor force participation rate will increase from its 2005 levels (Board of Trustees, 2005). The labor force participation rate is also important for assessing the extent of slack in the labor market. The unemployment rate alone, without understanding participation behavior, has become a less reliable indicator of labor market condi- tions. For example, the labor force participation rate fell nearly a percentage point from the end of the 2001 recession to 2005. This decline in the labor force participation rate may help to explain why the unemployment rate remained relatively low—5.0 percent in the fourth quarter of 2005—despite lackluster job creation during the years after the 2001 recession. Do workers increasingly respond to adverse labor demand shocks by exiting the labor force—and perhaps relying on
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This note was uploaded on 11/17/2009 for the course ECON 339 taught by Professor Habermalz during the Spring '09 term at Northwestern.

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Juhn-Potter labor force participation JEP - Journal of...

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