There is much lamenting about the decline in the labor force participation rate. As we recently discussed on this blog, while the rate decreased quickly during the previous recession and its recovery, the overall decline began several years before. This decline indicates there must be more than cyclical or even policy-related forces at work. One likely candidate is demographics. In the graph above, the proportion of the U.S. population 25 to 54 years of age follows a pattern similar to that of the labor force participation rate over the past 10 years. Why look at this 25-54 age range? Because this group has the highest labor force participation rate. So, if the share of this age group is declining, the aggregate labor force participation rate is likely to decline as well.
How this graph was created: For the first line, search for “population 25-54” and select “Civilian noninstitutional population—25-54 years.” To create the ratio, add the “Civilian noninstitutional population” series via the “Add Data Series” option: When you add this series, be sure to select “Modify existing series” for series 1. Then use the “Create your own data transformation” option using the formula a/b*100 so that the result is expressed in percentages. For the second line, simply add the civilian labor force participation rate as series 2.
Suggested by Christian Zimmermann