While the unemployment rate in the US has fallen over the last few years, there has been a notable decline in the labour force participation rate. As a consequence, the employment-population ratio has been largely stagnant since the depth of the recession in late 2009. Of course, part of the decline in the labour force participation rate is attributable to population ageing. In this post, I examine the potential contribution of declining labour force participation among working age adults to unemployment in the US since 2008.
The first chart displays the percentage of the working age population in the labour force for 2008-2013. This was calculated using data on population structure from the World Bank, and data on labour force participation from the Bureau of Labour Statistics. (Incidentally, because the BLS gives the labour force participation rate for the population aged 16 and above, yet the World Bank gives the young dependency ratio for the population aged 15 and above, I had to make an adjustment in order to calculate the population aged 16 and above. In particular, I subtracted 1.4% of total population, which is approximately equal to the proportion of individuals aged 15 in the US in 2008.) The labour force participation rate among working age adults declined by 1.9 percentage points (2.4%) between 2008 and 2013. By my calculation, population ageing accounts for only 1.2 percentage points (44%) of the decline in the labour force participation rate between 2008 and 2013.
I recalculated the US unemployment rate for 2008-2013 under the assumption that every working age adult who exited the labour force over this period actually became unemployed. The second chart displays the observed unemployment rate and the recalculated unemployment rate for 2008-2013. By 2013, the recalculated unemployment rate is 2.2 percentage points (30%) higher than the observed unemployment rate. Assuming that the deficit in labour force participation among working age adults over this period represents additional unemployment, cumulative unemployment from 2008 to 2013 was 18% higher than the observed unemployment rate suggests.