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Here's What's Really Going On With Baby Boomers And The Labor Force

At 39.8%, the labor force participation rate for those 55 years of age and over is the lowest it's been since April 2009 (chart 1).

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Millions of "baby boomers" — a generation typically defined as those born during the post-war baby boom that took place between 1946 and 1964 — have retired from the workforce over the past six years.

This is putting massive downward pressure on the total labor force participation rate, which currently stands at 63.0% (chart 2).

55+ LFPR
Chart 1. Business Insider/Matthew Boesler (data from St. Louis Fed)
LFPR
Chart 2. Business Insider/Matthew Boesler (data from St. Louis Fed)

Of course, the labor force participation rate for those 55 years of age and over has only been falling for the last year, whereas the total labor force participation rate has been falling for over five years.

This has led to some confusion.

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How can retiring baby boomers be the primary driver of the drop in labor force participation if the participation rate for those 55 years of age and over has been mostly increasing in recent years as the total labor force participation rate has fallen?

LFPRs
Chart 3. Business Insider/Matthew Boesler (data from St. Louis Fed)

It's important to remember that, at 39.8%, the participation rate for those 55 years of age and over is still a massive 41.1 percentage points lower than the prime working age (25-54) participation rate, which currently stands at 80.9% (chart 3).

Millions of Americans have been transitioning from the first bucket (25-54) to the second one (55+) over the past several years as the baby boom generation comes of retirement age.

Population growth
Chart 4. Business Insider/Matthew Boesler (data from St. Louis Fed)

Since 2007, the prime working age population has fallen by 1.556 million, or 1.2%, whereas the 55-and-over population has risen by 14.063 million, a 20.2% increase (chart 4).

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Some quick arithmetic shows the effect this has had on overall labor force participation:

  • The average prime working age LFPR since 2007 is 82.0%, and the average 55-and-over LFPR since 2007 is 40.1%
  • The size of the 55-and-over population has increased by 15.619 million relative to that of the prime working age population since 2007
  • 15.619 million multiplied by the difference between the two participation rates (82.0% - 40.1%) implies that this simple demographic shift alone has left only 6.544 million workers at the end of 2013 where there were 15.619 million at the end of 2007
  • Subtract that 6.544 million still in the labor force from the 15.619 million who made the shift from the first bucket to the second bucket and you get 9.075 million people 55 years of age or over who have left the labor force over the past six years

Don't take it from us, though — take it from the retiring boomers themselves.

The monthly Current Population Survey conducted by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics (from which labor force participation data are derived) actually asks those leaving the labor force why they are doing so.

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In a recent article, Ellyn Terry, an economic policy analysis specialist in the research department of the Atlanta Fed, broke down the numbers.

"In total, the number of people not in the labor force rose by 12.6 million (16 percent) from the fourth quarter of 2007 to the fourth quarter of 2013," wrote Terry.

Why people have left the labor force
Why people have left the labor force. Business Insider/Matthew Boesler (data from Atlanta Fed, courtesy of Ellyn Terry)

"About 5.5 million more people (a 16% increase) are retired, 2.9 million (a 23% increase) are disabled or ill, and 2.5 million (a 19% increase) are in school. An additional 161,000 are taking care of their family or house, and an additional 99,000 are not in the labor force for other reasons. The fraction who say they want a job has risen the most (32%) but has contributed only 11% to the total change."

Dividing 5.5 million by 12.6 million suggests around 44% of the drop in labor force participation since 2007 is retiring workers. Add the 2.3 million workers over the age of 50 who have left the workforce because of disability in that time period and the numbers suggest closer to 62% of the drop in labor force participation over the last six years can be attributed to an aging population.

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The 2.5 million people who have left the workforce in the past six years to go back to school, meanwhile, account for another 20% of the drop in participation, and discouraged workers — those who have left the labor force because they couldn't find a job — only account for 11% of the decline, as Terry notes.

It is true that, while the trends toward increased disability and school enrollment are being driven by important structural forces, they also probably have a significant cyclical component to them as well. In other words, a good number of people have probably left the labor force to go on disability or go back to school because they couldn't find a job.

However, nearly 80% of those who have gone on disability since 2007 are over the age of 50. The struggles of older workers in finding employment in this job market are well documented, and to the extent that the causes were cyclical, the effects may largely be structural.

Chart 6 zooms out a bit to make the simple point that America is getting older, a trend that will undoubtedly continue to have a profound impact on the labor market going forward.

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Population
Chart 6. Business Insider/Matthew Boesler (data from St. Louis Fed)


Labor Market
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