In our April 2016 View From A Mile Up article, Everyone into the (Labor) Pool, we discussed the forces keeping the labor force participation rate low by historical standards, even though the unemployment rate is at historic lows as well. (One would expect higher labor participation the lower the unemployment rate.) We also commented on the increasing participation rate for women. Since the end of the Great Recession, we have seen women entering the labor force at a much faster rate than men, as seen below.
Specifically, we noticed that 24 to 35-year-old women (often referred to as “prime-age” in labor force jargon) are pouring into the labor force, while similarly-aged men have seen a constant participation rate during the same time. Prime-age women are now participating in the labor force at a higher percentage than men of similar age. This confirms what Federal Reserve Chair Janet Yellen has been saying about “slack in the labor force,” meaning that even with a low absolute unemployment rate, there are workers that can still easily enter the workforce. This dynamic would explain the persistently low wage gains seen during this expansion. At some point that “slack” starts to disappear, leading to higher wages. Perhaps that time is now.