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The demographics of the activity rate decline

Many are lamenting the record lows in the labor force participation rate (or activity rate). The debate is whether this decline is cyclical or structural. The structural view has much to do with demographic shifts as the population gets older on average, so let’s look at the rates for different age groups.

We see a strong drop in participation by young men, likely reflecting a larger share who are staying in school longer. Older men’s participation hasn’t changed much. The bulk of the overall decline comes from middle-aged men. They are the largest group and have the largest impact. But their participation has been declining throughout the sample period, so it is not a new phenomenon for them.

For women, the story is very different because of their large increase in labor force participation up until the end of the past century. Older women are still increasing their participation, but recent declines for younger women seem to mirror the declines for men. So, the recently accelerating decline in the overall participation rate may have to do with women’s participation just not increasing like it used to.

How these graphs were created: Search for “Activity Rate,” then use the tags to limit the series to “Nation,” “USA,” and then “Males” or “Females.” Select the series and then add them to the graphs. Depending on the order of the series in the search results, you may have to adjust line colors to make them consistent in the two graphs.

Suggested by Christian Zimmermann

View on FRED, series used in this post: LRAC24FEUSM156S, LRAC24MAUSM156S, LRAC25FEUSM156S, LRAC25MAUSM156S, LRAC55FEUSM156S, LRAC55MAUSM156S

Inflation in the dollar zone

In a recent FRED Blog post, we showed how the exchange rate regime has had an impact on inflation rates in Europe. This time, we look at the dollar zone. Indeed, several countries have adopted the U.S. dollar as legal tender, and it is startling how their inflation rates have rapidly converged toward the U.S. rate. Just look at the graph. This convergence was likely the intention of those countries: Ecuador in 2000 and El Salvador in 2001 switched to the U.S. dollar to fight against very high inflation rates. Panama had already adopted the U.S. dollar in 1904 and has had no such problems with inflation.

How this graph was created: Search for “Inflation” and the respective countries. In the case of the U.S., change the units to “Percent Change from Year Ago” to match the units of the other series. The line width for the U.S. was increased and the color changed to black.

Suggested by Christian Zimmermann


How the exchange rate regime drives inflation

This graph shows inflation rates for some of the countries that founded the euro zone. The sample period encompasses three exchange rate regimes: 1. The first is a fixed exchange rate under the Bretton Woods agreement, which allowed some adjustments but ones that were difficult to achieve. The countries’ inflation rates were similar in this period, with occasional exceptions. 2. This system collapsed in 1971 and gave way to a series of exchange rate arrangements with varying membership and success in limiting exchange rate fluctuations. The graph clearly shows that inflation rates varied considerably from one country to the next, which made it difficult to obtain relatively stable exchange rates. 3. Then came the creation of the euro in 1999. A major requirement of membership to this currency union was a low inflation rate maintained within a small range across candidate countries. The graph nicely shows the convergence in inflation rates, which has been maintained to this date.

How this graph was created: Search for “Inflation” and then limit the selection in the sidebar by choosing tags: “Nation” (under geography types) and “World Bank” (under sources).

Suggested by Christian Zimmermann


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