The 21st Century Decline of the Core Labor Force

In my latest update on the trend in full-time versus part-time employment, I took a close look at the core working population, ages 25-54. I use the designation "core" to distinguish this cohort from the total civilian labor force, ages 16 and over. I wanted to exclude the two boundary subsets, which are subject to employment volatility. The 16-24 group covers the years of peak educational activity, high school and college attendance. The 55-and-older group covers the years when conventional households transition from two incomes to one, reduce full-time employment and ultimately leave the workforce for retirement.

Let's start with the big picture. The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (employed or seeking employment) and divide it by the Civilian Noninstitutional Population (not in the military and or committed to an institution). The result is the participation rate expressed as a percent.

Here is a chart showing the complete data series from the Bureau of Labor Statistics of the LFPR for both sexes and by gender for the 25-54 age group.

By far the most dramatic trend in the chart above is growth of women in the workforce, whose participation rate rose steadily until the early 1970s, accelerated for the next decade or so before slowing to a more gradual pace. The LFPR for women peaked in April 2000, just as the bubble was popping. In contrast, the LFPR for men peaked in 1954 at 97.4% and slowly declined to its current level.

Another way to visualize this secular trend is with a chart of the ratio of employed men-to-women over this timeframe.

The employment gender ratio has essentially stabilized since the mid-1990s within a narrow range of 1.14 to 1.19.

The Trend in the Core Labor Force since 1999

When we look beyond 20th century employment trends for the age 25-54 cohort, the situation changes. As I pointed out in the first chart above, the LFPR peaked in January 1999 at 84.6% for the both-sexes metric after a decade of hovering in a narrow range above 83%. Since the turn of the century this cohort has seen a slow decline in employment. Here is a snapshot of the LFPR since January 2000. One noticeable feature is that during the last recession the rate for women increased slightly, but not nearly enough to offset the overall decline.

A more striking way to visualize what's happening is to calculate the cumulative percent change from the LFPR peak in January 1999. Here is a view of the overall 25-54 workforce. We see that the general trend was one of decline since before the bust, one that didn't stabilize until 2005. With the onset of the Great Recession, the LFPR again began declining for our core labor force. Since November of 2012 it has oscillated in a narrow range, although the August data point is a new low since the 1999 peak.

When we look at the decline with a breakdown by gender, we see that women fared better during the Great Recession, after which they declined in tandem with men.

Are We Seeing a Structural Change in Employment?

In my view, the answer is yes. We know that a significant driver of the decline is a result of our aging population -- approximately 10,000 Boomers turning 65 daily. And we also know that the Great Recession and its employment stresses prompted many people to give priority to improving their human capital through education, hence the amazing surge in student loans that started in 2007 (more here).

But by focusing on the 25-54 core population, we essentially eliminate the retirement demographics and reduce the education-alternative-to-work, which is more prevalent in the 16-24 cohort -- individuals who decide to stay in school.

I'll close this commentary with one final chart. Here is an overlay of LFPR declines for the core workforce and the complete workforce.

Even when we factor out the aging population, the core LFPR contraction has been substantial -- about 70% as steep as the total decline. What the US has experienced over this nearly 15-year timeframe is the result of a combination of powerful forces, with technology in the forefront: The globalization of labor, which has been largely enabled by information technology, and technological advances that increase efficiencies and eliminate jobs.

The slope of the decline since the Great Recession has been disturbingly steep. Eventually we'll arrive at a new normal for this metric, just as we did for a few years during 2004-2007. At present we can only hope that that we're on the threshold of the bottoming process. Only time will tell.

My data source for the charts and numbers in the commentary is the BLS's Databases & Tools page -- specifically the Labor Force Statistics here.