Understanding the decline in the labour force participation rate in the United States
Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, Jim Stock 18 August 2014
The labour force participation rate in the US has fallen dramatically since 2007. This column traces this decline to three main factors: the ageing of the population, cyclical effects from the Great Recession, and an unexplained portion, which might be due to pre-existing trends unrelated to the first two. Of these three, the ageing of the population plays the largest role since it is responsible for half of the decline. Taken together, these factors suggest a roughly stable participation rate in the short-term, followed by a longer-term decline as the baby boomers continue to age. However, policy can play a
meaningful role in mitigating this trend.
In part due to the vigorous, multi-front response to the economic crisis, the US has enjoyed a sustained economic recovery that has exceeded most contemporaneous and historical financial crisis benchmarks. Up until a year ago, the unemployment rate was falling by an average of 0.7 percentage points per year, roughly tracking the more successful historical experiences, and well exceeding the norm following a financial crisis. In the past year, the pace of the decline in the unemployment rate has doubled.
Global crisis Labour markets
Labour force participation, US, Ageing population
Risks to the individual in defined contribution pension schemes
Ian Tonks, Edmund Cannon 20 August 2012
The UK is about to make a massive change to its pension system. From October 2012, employers will be obliged to automatically enrol employees into a pension scheme – though individuals can opt-out. This column explores what this might mean for pension funding and argues that the risks are to the downside.
The UK is about to make a massive change to its pension system. Auto-enrolment into a pension scheme comes into effect in Autumn 2012, as a quasi-compulsory defined contribution national pension scheme is introduced called NEST (National Employment Savings Trust). From October 2012, employers will be obliged to automatically enrol employees into a qualifying pension scheme (though individuals can opt-out).
Labour markets Macroeconomic policy
pensions, UK, Ageing population
Healthcare reform: Difficult but not impossible
Benedict Clements, David Coady, Sanjeev Gupta 24 June 2012
It is a daunting reality for many advanced economies that even if they manage to cut public spending today, they will continue to have huge liabilities as their populations age. This column argues that healthcare reform, no matter how politically unpalatable, will have to be a part of countries’ financial adjustment plans.
With public debt ratios soaring to levels unprecedented since the Second World War, fiscal adjustments are already underway and more will need to be done in many advanced economies (Buti and Pench 2012, Cottarelli 2012). In these economies, for example, an adjustment of an astonishing eight percentage points of GDP will be required, on average, between 2011 and 2020, and then sustained for a decade beyond that, to bring debt ratios to 60% of GDP (IMF 2012).
Ageing population, Healthcare reform
Addressing the incompleteness of long-term care insurance
Joan Costa-i-Font 09 June 2012
As if the current debt problems for industrialised economies were not enough, many face the added challenge of ageing populations. This column argues that the biggest threat from an ageing population is the lack of cover for long-term care.
With rapid population ageing, expenditure on long-term care – that is, care and assistance for old-age dependent elderly – has risen faster than health expenditure. Perhaps surprisingly, this increase is far more due to population ageing than to changes in people’s health (Colombo and Mercier 2012, Breyer et al. 2011).
insurance, Ageing population, long-term care
It's the family, stupid!
Edoardo Campanella 24 February 2012
Western countries with ageing populations are in the grip a cruel irony. At the same time as having more old people than ever to support, youth unemployment is at its highest levels for a generation. As many of these countries go into elections this year, this column warns against populist politics that panders to the grey vote, and instead calls for leadership that puts the family first.
Deep economic crises encourage a radical rethinking of the socioeconomic model that generated them. The combination of shrinking economies, political stalemate, and growing social resentment is inducing people, especially the younger, to question a model of society that is prone to generate huge inequalities as well as great instability but is incapable of providing a long-term direction in difficult times. With general elections approaching in most European countries over the next 12 months, there are all the ingredients for populism to emerge.
Politics and economics Welfare state and social Europe
family, Ageing population, youth unemployment
Future skill shortages in the US economy? Sorting out the evidence
David Neumark, Hans Johnson, Marisol Cuellar Mejia 14 August 2011
The impending retirement of the baby-boom cohort represents the first time in the history of the US that such a large and well-educated group of workers will exit the labour force. Despite the gloomy outlook of recent research, this column suggests there is little likelihood of large-scale skill shortages emerging by the end of this decade.
Ageing workforces pose challenges to governments around the world. While fiscal issues surrounding pension and social security have been very much in the news, a less well-known issue concerns skills.
US, Ageing population, Skill shortages
Demographic pressure versus labour market space: A global view
Marga Peeters, Loek Groot 02 August 2011
Fiscal pressure from demographic changes is mounting across the globe. This column asks whether labour markets will create enough jobs. Cross-country comparisons suggest that, until at least 2050, the countries most under pressure will be Poland, Turkey, and Greece.
Economists tend to study the problem of ageing in the developed countries in terms of rising old-age dependency ratios, which express the increasing higher number of pensioners for every working-age person. We can also apply the same reasoning to the young, where rising young-age dependency ratios in developing countries by definition implies more youngsters for every person of working age. But this is not the full story.
Labour Markets, Poland, Greece, Ageing population, Turkey, Demographic changes
Does population ageing reduce productivity growth?
Dirk Niepelt, Martín Gonzalez-Eiras 24 June 2011
Should developed countries raise their retirement ages to combat the economic effects of their ageing populations? This column presents a model suggesting that, viewed in isolation, putting off retirement will actually reduce growth. It is only when viewed along with other policies that the benefits for growth arise.
The prospect of “greying” populations in many developed economies is raising concerns about the sustainability of economic growth. According to these concerns, rising old-age dependency ratios translate into growing tax burdens while generous pension and healthcare benefits crowd out public investment spending for infrastructure or education, with negative effects for capital accumulation and productivity growth.
Health economics Welfare state and social Europe
demographics, Ageing population
Does ageing really affect health expenditures? If so, why?
Friedrich Breyer, Stefan Felder, Joan Costa-i-Font 14 May 2011
Over the last half century, life expectancy in the industrialised world has risen dramatically – and so has the healthcare bill. Is population ageing the main reason? This column argues that while ageing does affect health spending, it is far less important than many think. It adds that obsession with an ageing population is a dangerous red herring that prevents dealing with the real culprits of rising costs.
The share of older people in the population is growing faster than that of any other age group, both as a result of longer lives and a lower birth rate. But the effect of population ageing on health and healthcare is far from straightforward. Figure 1 plots life expectancy against health expenditure for 30 OECD countries in 1970 and 2005. The positive correlation is evident, although it is less distinctive at high levels of healthcare expenditure.
healthcare, Ageing population
Age, wage, and productivity
Jan van Ours 05 March 2010
Ageing populations are a concern for many developed countries, with increasing dependence on the working population expected. Despite this, there is relatively little research on how productivity changes with age. This column argues that while older people do not run as fast, there is no evidence of a mental productivity decline and little evidence of an increasing pay-productivity gap. The negative effects of ageing on productivity should not be exaggerated.
Over the coming decades, European countries will experience a steep increase in the share of elderly people and a steep decline in the share of people of prime working-age. The number of workers retiring each year will increase and eventually exceed the number of new labour market entrants. The ratio of older inactive persons per worker could rise to almost one older inactive person for every worker by 2050 (OECD 2006).
Labour markets Productivity and Innovation
productivity, Ageing population, European countries