Two authoritative government agencies reported this week that retiring baby boomers have contributed heavily to the shrinking of the nation's workforce, countering fears that the recovery from the financial crisis has stalled out.
Before the recession hit, the labor force participation rate — the percentage of working-age Americans working or looking for work — stood at 66 percent. It has since fallen steadily, dropping to 62.8 percent as of December, the lowest reading since 1978.
That the labor force participation rate has been declining even as the unemployment rate has improved from 10 percent to 6.7 percent has led some observers, especially critics of President Obama's economic stewardship, to suggest that the recovery is weaker than the most closely watched numbers would suggest.
Analysts have provided differing estimates of whether the ongoing exodus of Americans from the workforce reflects the country's changing demographics or the weakness of the recovery. One representative conclusion is that taking unemployment and the labor force dropoff together, the U.S. is roughly 8 million jobs short of where it would be if the economy were healthy.
The Congressional Budget Office, the official nonpartisan budget scorekeeper for Congress, found in a report released alongside its budget update that about half of the decline in labor force participation since 2007 is a result of the weak economy. The other half is mostly the Baby Boom generation entering retirement. The CBO's estimate of the total jobs gap is 6 million.
The Federal Reserve Bank of New York also issued a report on U.S. employment on Monday. Researchers there adjusted the total employment-to-population ratio for all non-incarcerated American adults to take into account demographic changes. With that adjustment, they found, the gap between the pre-recession employment-to-population ratio and today's is only seven-tenths of a percentage point, rather than the 4.1 percentage point gap when the rates are not adjusted for aging baby boomers. The New York Fed's analysis implies a jobs gap of roughly 2 million, far smaller than other middle-of-the-road estimates.
Both reports suggest that the aging of the baby boomers will continue to depress the labor force participation rate (the first baby boomers reached retirement age in 2011). The CBO, in particular, projects the rate to continue falling throughout the cyclical recovery, driven in part by Obamacare and workers going on disability in the medium term — and retirees in the longer run. It sees the rate dropping to 60.8 percent in 2024 — a level it hasn't reached since 1973.
Neither report will be the last word on the declining labor force participation rate, which has been the subject of increasingly intense scrutiny in recent months. The New York Fed's methods, in particular, already have been criticized by the Economic Policy Institute's Josh Bivens, who chargedthat they might have made some inappropriate adjustments to past years' data.
Other independent reports with separate methodologies will continue to be useful in comparisons with official estimates from the CBO. For instance, a late 2013 study from the Philadelphia Fed that examined labor force dropouts' stated reasons for quitting the workforce is a helpful benchmark. That analysis found that while the recession caused most dropouts in the years from 2007-2012, retirees have driven nearly of all the decline since then.