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The health of labor markets post-pandemic: The supply perspective

As we discussed in the previous post, firms everywhere are having serious difficulties filling vacancies. With these worker shortages on everyone’s minds, let’s discuss how the pandemic has shaped the workforce.

The FRED graph above shows the fraction of people who participate in the labor force—that is, who either have a job or are actively looking for one—by age group. In previous recessions, only teenagers had significant declines in participation rates; clearly, most workers who lost their jobs kept looking for another. In 2020, however, participation rates declined across the board, with would-be workers leaving the labor force in the face of widespread shutdowns, health concerns, school closures, and financial support from the government.

That said, different age groups clearly reacted to the recent recession in different ways. Older workers’ participation rates declined through 2021—probably led by a wave of early retirees—but prime-age workers’ rates plateaued slightly below their pre-pandemic levels. It’s likely that some would-be workers remain out of the labor force because of lingering health concerns and childcare needs.

Now, what about teenagers today? The participation rate for 16- to 19-year-olds has increased beyond its pre-pandemic level. It’s possible some of this is related to historically low undergraduate enrollment, with high school graduates opting for work in the tight labor market over potentially remote learning.

How these graphs were created: Search for and select “Labor force participation rate – 16-19 Yrs.” From the “Edit Graph” panel, use the “Add line” tab to search for and add “Labor force participation rate – 20-24 Yrs.” Do the same for “Labor force participation rate – 25-54 Yrs.” And “Labor force participation rate – 55 Yrs. & Over.” Set the date range to mirror the dates shown in the blog post.

Suggested by Carlos Garriga and Devin Werner.

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