Recent U.S. Labor Force Dynamics: Reversible or not?

Ravi Balakrishnan, Mai Dao, Juan Sole and Jeremy Zook

No 2015/076, IMF Working Papers from International Monetary Fund

Abstract: The U.S. labor force participation rate (LFPR) fell dramatically following the Great Recession and has yet to start recovering. A key question is how much of the post-2007 decline is reversible, something which is central to the policy debate. The key finding of this paper is that while around ¼–? of the post-2007 decline is reversible, the LFPR will continue to decline given population aging. This paper’s measure of the “employment gap” also suggests that labor market slack remains and will only decline gradually, pointing to a still important role for stimulative macro-economic policies to help reach full employment. In addition, given the continued downward pressure on the LFPR, labor supply measures will be an essential component of the strategy to boost potential growth. Finally, stimulative macroeconomic and labor supply policies should also help reduce the scope for further hysteresis effects to develop (e.g., loss of skills, discouragement).

Keywords: WP; labor market; labor force; age group; regression analysis; labor force participation; unemployment; employment gap; macro-economic policy; LFPR decline; LFPR dynamics; aggregate LFPR picture; trend LFPR; participation rate shift; LFPR change; Aging; Labor markets; Global (search for similar items in EconPapers)
Pages: 29
Date: 2015-04-02
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Citations: View citations in EconPapers (2)

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