Aggregate Labor Force Participation and Unemployment and Demographic Trends
by Andreas Hornstein and Marianna Kudlyak, FRB San Francisco WP No. 2019-07, FRB Richmond WP No. 2019-08
Download LFP and Unemployment Trends and Projections, 1976-2028
Download Educational Shares by Age-Gender Groups, 1976-2028
Abstract: We estimate trends in the labor force participation (LFP) and unemployment rates for demographic groups differentiated by age, gender, and education, using a parsimonious statistical model of age, cohort and cycle effects. Based on the group trends, we construct trends for the aggregate LFP and unemployment rate. Important drivers of the aggregate LFP rate trend are demographic factors, with increasing educational attainment being important throughout the sample and ageing of the population becoming more important since 2000, and changes of groups' trend LFP rates, e.g. for women prior to 2000. The aggregate unemployment rate trend on the other hand is almost exclusively driven by demographic factors, with about equal contributions from an older and more educated population. Extrapolating the estimated trends using Census Bureau population forecasts and our own forecasts for educational shares, we project that over the next 10 years the trend LFP rate will decline to 61.1% from its 2018 value of 62.7%, and the trend unemployment rate will decline to 4.3% from its 2018 value of 4.7%.
Disclaimer: Any opinions expressed in the paper are those of the authors and do not reflect those of the Federal Reserve Bank of Richmond, the Federal Reserve Bank of San Francisco or the Federal Reserve System.