United States: Will demographics depress the potential for a participation rate rebound?

Chart of the week

Market commentary has focused on the disappointing job creation numbers in the February job report released last week: just 20,000 new jobs created. However, the report’s other data were quite robust, including a steady average number of hours worked and, in particular, a pick up in the pace of hourly wages.  It is worth pointing out that January’s 300,000 job creations number was extremely high and that February’s freezing temperatures most likely depressed February’s number. The real picture, then, is probably less sobering than this steep plunge in job creations would lead us to believe.

Among the report’s other indicators is the labour force participation rate, which in the US measures the percentage of those aged 16 and over, capable of work, and either in or actively seeking employment. This indicator has stabilised at 63.2%, following two consecutive monthly increases, and currently stands at its highest level since 2013.


The falling US labour force participation rate has been generally accepted as a sign of the poor quality of the economic upturn and taken to indicate an increasing number of people opting out of the labour market. In truth, as the graph above shows, a large part of the fall in the participation rate is down to demographics, and in particular due to an ageing US population.

The scale of the Great Recession could well have accelerated the downward trend, but if we set each participation rate age group at the level that prevailed before 2008 (to strip out the recession effect) and take only the relative impact of each generation into account, we obtain two similar pictures.

Even though demographic factors can be expected to continue to depress the participation rate in the years ahead, the recent experience of Germany and Japan demonstrates that there is still potential for the participation rate to continue upwards. But whatever happens, this jump to above 63.0% indicates a robust US job market and supports the idea that the labour market is currently very tight.


The opinion expressed above is dated March 14th, 2019, and liable to change.

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