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Labor force participation rates across the OECD

Who's working depends on where you look

One critical element for the growth of an economy is an active working-age population: Growth can be hampered when (i) the overall population is aging and a larger share of the population is retired or (ii) a larger share of the working-age population simply isn’t working. The graph above shows, for four countries, the share of the population that’s 25 to 54 years of age—i.e., prime working age—with a job. The remainder of that population is either unemployed or not looking for a job.

This graph reveals some stark contrasts. Japan and the U.K. show steady increases, which helps counter the effects of their aging populations, a condition that’s of particular concern in Japan. Spain shows a very rapid increase, which demonstrates that such a statistic need not move in a sluggish way. The U.S., however, shows no significant movement in the 1990s and a decline since then. We know this isn’t due to an increase in unemployment, which is at its lowest rate in a long time.

To be fair, the increases in other countries are partly due to increases in women’s labor force participation. The U.S. experienced a surge in women’s participation much earlier and has apparently reached its plateau. Much of the decrease in U.S. labor force activity, as it turns out, has to do with men: Even a quick look at the graph below shows the steady decline in their activity. Understanding why this is happening is a topic of much current investigation.

How these graphs were created: For the first, search for “Participation Rate” and then use the sidebar to narrow down the choices. Then select the desired series (annual, in our case) and click on “Add to Graph.” For the second, searching for “United States Participation Rate” gives your the right options. Choose the annual series again, and click on “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: LRAC25FEUSA156N, LRAC25MAUSA156N, LRAC25TTESA156N, LRAC25TTGBA156N, LRAC25TTJPA156N, LRAC25TTUSA156N

The recent evolution of labor force participation

Small movements from a lot of labor market churn

Since the early 2000s, labor force participation has been declining in the U.S. After peaking at 67.3 percent in March of 2000, the labor force participation rate declined consistently to 62.4 percent in September 2015 and has since flattened out. The first graph shows the period of decline in the labor force participation rate, which started in early 2000, flattened out in mid-2005, and then declined again from the onset of the Great Recession to 2015.

Several variables in FRED can illustrate the labor force dynamics at play behind the declining labor force participation rate. The next graph shows the annual change in the labor force (employment plus unemployment). While the labor force has mostly been increasing since 2000, it has not been increasing fast enough to keep up with population growth. Starting in 2014, however, the pace of growth in the labor force picked up, which led to the flattening out of the participation rate.

The last graph shows monthly flows into (red line) and out of (blue line) the labor force. These gross flows are very close to each other, with the net changes (green line) always close to zero. It is the net changes that explain the evolution of aggregate labor force participation. From 2009 to 2016, the positive values are not enough to offset the more negative values and more people flowed out of the labor force. More recently, however, the positive contributions more than offset the negative values, leading to an increase in participation. Despite this recent evolution, the graph does not seem to point to any particular new trend that’s different from the past. This suggests that more research is needed to understand the observed decline in the participation rate.

How these graphs were created:
Graph 1: Search for “Labor Force Participation.” Graph the first result and limit the date range from 2000 to current.
Graph 2: Search for “Unemployment.” Graph the series titled “Unemployment Level.” From the Edit Graph tab, type “Employment Level” in the customize data section search box. Click the series titled “Civilian Employment Level” and then click Add. Finally, type a+b in the formula box and change the units to “Change, Thousands of Persons.”
Graph 3: Search for “Labor Force Flows.” Graph the series titled “Labor Force Flows Employed to Not in Labor Force.” Repeat the process outlined in Graph 2 to modify the line by adding “Labor Force Flows Unemployed to Not in Labor Force” to the graphed series. Now, select the middle menu and search for “Labor Force Flows Not in Labor Force to Unemployed” and add this series as a new line. Repeat the process to modify the line by adding “Labor Force Flows Not in Labor Force to Employed.” Once again, use the middle menu to add “Labor Force Flows Not in Labor Force to Employed” as a new line and then modify the line by adding the remaining three flows as additional series on the new line. Use the letters assigned to each series to calculate the difference of the sum of those flowing into the labor force less those flowing out of the labor force (e.g., consider (a+b)-(c+d)).

Suggested by Maximiliano Dvorkin and Hannah Shell.

View on FRED, series used in this post: CE16OV, CIVPART, LNS17200000, LNS17600000, LNS17800000, LNS17900000, UNEMPLOY

Disability within the labor force participation rate

Recent fluctuations in the labor force participation rate have received national attention. And there’s an obvious question here, with ramifications for how we view that number: Why would a working-age person not be in the labor force?

In June 2008, the Current Population Survey added a question about disability status. It turns out that a non-trivial number, about 1 in 5, report a disability that limits their capacity to work. The graph above shows that the number of persons out of the labor force who have a disability has been steadily rising and that there are more women than men in this group. The average increase has been about 1.9% year-over-year, with a slightly higher rate for men than women: 2% vs. 1.8%. These rates are significantly faster than population growth or the growth in the labor force. In other words, we’re seeing a piece of the decline in the overall labor force participation rate (i.e., the fraction of the working-age population who work or are actively trying to find work).

Although many physically demanding jobs have historically been male-dominated, more women report being out of the labor force because of a physical disability. Part of the reason is that there are more women who do not participate in the labor force. The disability questions also identify anyone in the household with a disability, so we may be seeing women staying out of the labor force to help care for a disabled member of the household.

The bottom graph shows the fractions of those out of the labor force: About 1 in 4 working-age men who are not in the labor force have a disability, whereas only 1 in 6 women do. The bottom graph also shows that the increasing trend (seen in the graph above) is right in line with the overall trend in non-participation. The fraction of workers out of the labor force because of disability is approximately constant, meaning that non-participants without a disability are rising at the same rate as those with a disability.

How these graphs were created: For the top graph, simply search for “not in labor force disability 16 64 men” and then the same series for women. For the bottom graph, use the same series (as the “a” series) and add the “no disability” versions (as the “b” series) with the “Add Data Series” / “Transform Data Series” options. Then apply the formula a/(a+b).

Suggested by David Wiczer.

View on FRED, series used in this post: LNU05076940, LNU05076945, LNU05076955, LNU05076960

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