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News from EPI Roughly two-thirds of labor force participation rate’s drop due to cyclical changes, new EPI paper finds

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For Immediate Release: Thursday, May 24, 2012
Contact: Phoebe Silag or Karen Conner, news@epi.org 202-775-8810

Roughly two-thirds of labor force participation rate’s drop due to cyclical changes, new EPI paper finds

The labor force participation rate – the share of working-age people who either have a job or are jobless but actively seeking work – has dropped more than two percentage points since 2007. Roughly two-thirds of this drop is due to the weak job opportunities in the Great Recession and its aftermath, a new Economic Policy Institute paper finds. The remainder is the result of long-run demographic trends. In other words, two-thirds of the labor force participation rate’s recent decline is cyclical, and one-third of it is structural.

In Labor force participation: Cyclical versus structural changes since the start of the Great Recession, EPI economist Heidi Shierholz explains that the cyclical decline in the labor force participation rate means that there are nearly four million workers “missing” from the labor force. These missing workers would be in the labor market if job prospects were strong.

“A robust recovery would draw workers into the labor market, boosting the labor force participation rate, as missing workers would now be actively looking for work, and the unemployment rate would not drop as fast as it otherwise would,” said Shierholz. “That kind of upward pressure on the unemployment rate would be a positive sign of the economy’s strength.”

Labor force participation previews data from the forthcoming book “The State of Working America, 12thEdition,” which EPI will release in August. Contact news@epi.org for an advance copy.

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