The unemployment rate has been comfortably below what economists call “full employment” for over a year and one-half. However, a major concern since the start of the last recession has been the labor force participation rate. This is a measure of the share of the civilian population (16 and older) that is either employed or unemployed but looking for work. While it is true that the participation rate has been falling since before the last recession, a look back in history shows how this statistic has been at the mercy of demographic and social trends, as much as any economic ones.

US-Labor-Force-Participation

Given the social and demographic forces affecting this often-cited figure, we thought it appropriate to dig into the numbers a little further. Labor force participation peaked in December of 1999 at 67%. That peak followed decades of increased participation in the labor force keyed by two major trends: the baby-boomer demographic and women entering the workforce.

Women entering the workforce, and specifically baby-boomer women entering the workforce in large numbers, fundamentally changed the composition and characteristics of the U.S. labor force. Women as a percentage of the U.S. workforce increased dramatically over the past four decades. The large increase from the 1970s to 2000 of women in the workforce upwardly biased the participation rate for the entire workforce. The increase corresponded to the overall increase in the participation rate as baby boomer women, increasingly college educated, entered the workforce, whereas their mothers tended to stay home.

Make-Up-of-US-Workforce-by-gender

We are not likely to see the kind of explosive growth in labor participation that occurred from the 1970s to 2000. In fact, we are seeing labor participation rates drop for certain demographics. The biggest drop in labor participation rates over the past two decades were among 16 to 24 year olds without a college degree. Much of that drop can be attributed to increased school attendance. For 16 to 24 year olds, the percent attending school full time grew from 38% in 1998 to almost 60% in 2014. The increase in school attendance for this crucial demographic is good background on the overall rate as it skews labor force participation downward, yet produces a better educated workforce in the end. When combined with baby-boomers exiting the labor pool as they reach retirement age, the likelihood of getting back to high-sixties participation rates is slim. Enter the millennial generation, where the 25 to 34 year-olds entering the workforce are responsible for the recent uptick in the participation rate. The increase in the participation rate shows that some members of the workforce are diving back into the labor pool, which is a good thing for the U.S. economy, and should alleviate some pressure on wages and worker shortages.