Why is the US labor force growing more slowly?

The US labor force — that is, the number of Americans working or actively seeking work — has grown at a slower rate every decade since the 1970s. Prior to the COVID-19 pandemic, the US labor force was facing population and immigration growth declines, lower rates of women and younger people going into the labor force, and more Americans reaching retirement age.

The rate of expansion of the labor force peaked in the 1970s at almost 25,000 people per decade. By the 2010s this number declined to just over 5,000. In the past two years, amidst the COVID-19 pandemic, the labor force actually shrank. A shrinking or more slowly growing labor force means fewer people making the goods and services that drive the economy. It can also exacerbate the current supply chain challenges.

The labor force participation rate, or the proportion of workers compared with the general population, is also declining. This is happening at the same time as more Americans are reaching retirement age. People in that group are more likely to rely on social programs such as Social Security and Medicare. These programs are primarily funded through payroll taxes paid by the labor force. With a lower share of Americans working, it means fewer funds for the programs supporting those who aren’t.

Why is the labor force growing more slowly?

The number of people in the labor force is growing more slowly for a number of reasons: the overall population growing at a slower rate, more workers reaching retirement age, fewer people entering the workforce, particularly women and younger people, and a decline in immigration.

More Americans are reaching retirement age.

The American population is aging. The first baby boomers reached age 55 in 2001, and as the generation continued to age beyond the prime working age — between 25 and 54 — the nation’s labor force participation rate also waned. The 55+ population was 29% of the country in 2019 compared with 21% in 2000.

Even though older Americans are working more than they used to (the participation rate for those over 55 has risen by 10 percentage points over the last 25 years), they still participate in the labor force at much lower rates than younger people. The result is the aging population puts downward pressure on the labor force participation rate.

Fewer young people are getting jobs.

A growing proportion of younger Americans — especially those in the 16-24 age group — are also not in the labor force. This may be due to more of them choosing to pursue school. The proportion of young Americans enrolled in secondary and post-secondary education has been rising. But it is not clear whether the increase in school enrollment is the cause or the effect of declining participation. For example, more people may be enrolling in colleges or universities because they can’t find jobs.

And school enrollment doesn’t appear to be the only factor driving lower youth participation in the labor force. The participation rate for unemployed teens who are not in school is also declining. Some possible explanations for the drop include worsening economic conditions, the changing structure of the job market, globalization, competition from the immigrant population, and increased demand for workers with higher education.

Since 2000, the share of women in the labor force has declined.

In 1948, only 32% of women were in the labor force, compared with 87% of men. Over the next five decades, women’s participation increased while men’s participation decreased. By 2000, about 75% of women were in the workforce — only 15% less than men. From 1950-2000, the incorporation of women into the workforce increased the size of the overall labor force, and the labor force participation rate. But since 2000, the share of women in the labor force has declined, reversing the prior trend.

Since the start of the pandemic, the percentage of women leaving the labor force increased.

According to Bureau of Labor Statistics data from May 2022, women and men cite different reasons for why they aren't in the labor force if they're capable of working. Of these "marginally attached" workers, women were more likely to stay out of the labor force due to family responsibilities (14%) than men (10%).

Since 1980, immigration to the US declined.

Immigration has historically boosted the labor force and the labor force participation rate: immigrants increase the population and tend to participate in the labor force in greater proportions than native-born Americans. As of April 2022, the participation rate of foreign-born people was 65%, compared with 61% for native-born Americans. Between 1970 and 2010, the foreign-born labor force quintupled from just over 4 million to over 20 million —far outpacing the growth rate of the labor force overall.

But since 1980, immigration has slowed. Immigration, therefore, explains some of the rapid growth in the labor force in the last few decades of the 20th century, as well as playing a part in the more recent slowdown.

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