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What’s Hollowing Out the US Workforce?

Although the US economy continues to add jobs and deliver robust wage growth across the board, the labor-force participation rate remains below its pre-pandemic level. This reflects a long-term trend, and it is a major problem that demands bipartisan attention.

WASHNGTON, DC – America’s labor market is booming. Over the past six months, the economy added an average of 465,000 net jobs per month – recovering all the jobs lost during the pandemic, as of July – and the unemployment rate fell by three-tenths of a percentage point. At 3.5%, it is as low as it was in the tight labor market of early 2020.

Unfortunately, the workforce participation rate tells a different story. At 62.1%, it is 1.3 percentage points below its level in February 2020, the month before the pandemic began pummeling the US economy. Although the labor-force participation rate has recovered nearly two percentage points from its low in April 2020, it has been stagnant over the course of this year.

True, much of the decline is being driven by relatively older workers. Early retirements and the aging of the population have reduced the workforce participation rate for people over 55 to 38.7% –1.6 percentage points lower than its February 2020 level. Worse, economists at Goldman Sachs estimate that population aging could continue to reduce the participation rate by 0.2 percentage points per year.