Economic Snapshot | Economic Growth

Leaving in droves

By Kathryn Edwards and Heidi Shierholz

Since the recession started in December 2007, the labor force — people who are either working or seeking work — has declined by 700,000 workers, even though the working-age population has increased by 3.7 million. The shrinking labor force is largely a reflection of discouragement with the labor market; as jobs have become scarce, many job seekers have given up looking for work. That said, the decline in the labor force has not been spread equally across the population. The figure shows the percentage point change in the labor force participation rate by age.

The labor force participation rate for workers age 16-24 has decreased from 59.1% to 54.7% in the 25 months since the recession started, representing a loss of 1.3 million young workers, while the labor force participation rate of workers age 55 and older increased from 38.9% to 39.9%, representing an increase of 2.3 million workers. Many older workers are not retiring or are re-entering the labor force because they have suffered a sharp decline in economic security due to the collapse of the housing bubble and the plunge in stock prices. At the same time, workers age 16 to 24  — who face an unemployment rate of 18.9%, compared to 6.8% for workers age 55 and older — are having a difficult time securing employment and are leaving the labor force in large numbers. This lost work experience is likely to have a lasting detrimental effect on the wages and occupational paths of these young workers. Congress should consider making Medicare and unreduced social security retirement available to workers at age 64 for the next two years so that older workers would be able to retire. Such a policy would have the added benefit of creating job openings for younger workers.

For more information about labor force participation rates among different demographic groups, and how today’s levels compare to past recessions, visit EPI’s Economy Track.