United States: Selected Issues

International Monetary Fund

No 2014/222, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper on the United States of America examines the recent US labor force penetration rate (LFPR) dynamics. LFPR dynamics can be driven by structural factors and cyclical ones related to job prospects. With participation rates for older workers lower than for prime age workers, demographic models suggest that aging of the baby boom generation explains about 50 percent of the near 3p.p. LFPR decline during 2007–2013. State-level panel regression analysis is used to tie down the cyclical effect, which is estimated to account for about 30–40 percent of the decline. Significant remaining slack in the labor market points to an important role for macroeconomic and labor supply policies. This suggests a still important role for stimulative macroeconomic policies to help reach full employment. Macroeconomic policy should remain accommodative for a while given sizeable labor market slack. This slack goes beyond that signaled by the unemployment rate and takes account of the LFPR being below trend and many employees working part time ‘involuntarily’.

Keywords: ISCR; CR; TFP growth; federal funds rate; LFPR decline; fed fund; policy uncertainty; Fed funds lending; LFPR dynamics; Total factor productivity; Unemployment; Aging; Central bank policy rate; Global; Caribbean; North America; Europe (search for similar items in EconPapers)
Pages: 113
Date: 2014-07-23
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Citations: View citations in EconPapers (2)

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