Finance and Economics Discussion Series (FEDS)
July 2021
The Long-Lived Cyclicality of the Labor Force Participation Rate
Tomaz Cajner, John Coglianese, and Joshua Montes
Abstract:
How cyclical is the U.S. labor force participation rate (LFPR)? We examine its response to exogenous state-level business cycle shocks, finding that the LFPR is highly cyclical, but with a significantly longer-lived response than the unemployment rate. The LFPR declines after a negative shock for about four years—well beyond when the unemployment rate has begun to recover—and takes about eight years to fully recover after the shock. The decline and recovery of the LFPR is largely driven by individuals with home and family responsibilities, as well as by younger individuals spending time in school. Our main specifications measure cyclicality from the response of the age-adjusted LFPR, and we show that it is problematic to use the unadjusted LFPR when estimating cyclicality because local shocks spur changes in the population of high-LFPR age groups through migration. LFPR cyclicality varies across groups, with larger and longer-lived responses among men, younger workers, less-educated workers, and Black workers.
Accessible materials (.zip)
Keywords: labor force participation, labor supply, labor force composition, labor force demographics, full employment, Okun’s law, geographic mobility, labor mobility, regional migration
DOI: https://doi.org/10.17016/FEDS.2021.047
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.