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Labor-Force Participation

Posted Apr 05 2014 11:24am

Structural changes in the United States are plainly at work; based in part on slower-moving demographic factors.

A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements.  Other economists have attributed about half of the drop to the aging of Baby Boomers .

Baby Boomers can't be the whole story, though, since the participation rate has declined for younger workers too.  This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance.  Globalization and technological change have also reduced employment and wage growth for low-skilled workers--which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.

To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense.  Different narratives of today's labor market point to different possible solutions.

Source: The Wall Street Journal, April 5, 2014


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