The Decline in the U.S. Labor Force Participation Rate

Abstract

After peaking around the year 2000, the Labor Force Participation Rate (LFPR) of Americans declined substantially, falling faster after the financial crisis of 2007. Since 2015, the LFPR has remained at its lowest in four decades. In this paper, we produce a comprehensive review of the literature investigating the causes of the recent decline in LFPR. We include works from the academic literature as well as the gray literature from research institutes and labor market experts, and published and unpublished studies. The literature reviewed signals multiple causes behind this decline. The research on the extent to which the Great Recession had caused the decline establishes that most of it cannot be attributed to cyclical factors. Additionally, the literature examines the relative importance of trend factors, such as long-running demographic patterns, which explain at least part of the decline. The review includes articles that aim to quantify the impact of one or more factors through statistical or econometric analysis or economic modeling. Demographic trends, like the aging of the Baby Boom Generation, explain a large portion of the decline. The rest of the decline can be attributed to factors that affect the participation rates of specific subpopulations, such as technological innovations and trade, as well as to changes in social programs, such as Social Security Disability Insurance. Some subpopulation trends are clear, but their ultimate causes are not fully understood, as is the case for female and youth LFPRs. We list these factors and point to important areas for future research.