Tuesday, February 2, 2016

15 Year Decline In Labor Force Participation Among Upper Income Half Households In Prime Working Years, 25-54 Year Olds

From Federal Reserve Bank of San Francisco, FRBSF Economic Letter 2016-02, February 1, 2016, "Changes in Labor Participation and Household Income" by Robert Hall and Nicolas Petrosky-Nadeau:
The percentage of people active in the labor force has dropped substantially over the past 15 years. Part of this decline appears to be the result of secular factors like the aging of the workforce. However, the participation rate among people in their prime working years—ages 25 to 54—has also fallen. Recent research suggests this decline among prime-age workers can be attributed in large part to lower participation from among the higher-income half of U.S. households.
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The LFP [labor force participation] rate for people between the ages of 25 and 54 was 83.8% in 2004, then dropped to 81.2% by 2013. This 2.6 percentage point decline has persisted well beyond the end of the Great Recession and has caught the attention of policymakers, particularly because it concerns workers in their prime who are usually active participants in the labor market.
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Table 1
Labor force participation among prime-age workers across household income distributions
Note: Numbers to right of lines show percentage point changes to total and quartile contributions, 2004–13.
Source: Federal Reserve Bank of San Francisco

Looking back in time, we see that the decline in the LFP rate of prime-age workers is unevenly spread across the income distribution. The poorest quartile had the smallest change since 2004, falling 0.8 percentage point. The second quartile fell 2.4 points, while the third quartile reported the largest drop with 3.2 points. Participation also fell 2.0 percentage points for households in the fourth quartile.
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Figure 1
Changes in labor participation among prime-age workers
Total and contribution by quartiles of household income distribution
Source: Federal Reserve Bank of San Francisco
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Figure 2
Contribution by age group to changes in labor participation

Source: Authors’ calculations based on the SIPP.
Source: Federal Reserve Bank of San Francisco

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