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International Monetary Fund. Western Hemisphere Dept.

becomes insignificant, possibly driven by heterogeneity between older workers in hard-hit states that had to increase participation (such as Nevada and Arizona) and those in less affected states who withdrew from the labor market due to poor job-finding prospects. D. Youths, SSDI, and Older Workers 22. Participation rate trends for youths and older workers and the impact of rising SSDI recipients are key components of the aggregate LFPR picture . However, disentangling how much of their respective changes since 2007 is cyclical, structural, or reversible is a

Mr. Ravi Balakrishnan, Mai Dao, Mr. Juan Sole, and Jeremy Zook
The U.S. labor force participation rate (LFPR) fell dramatically following the Great Recession and has yet to start recovering. A key question is how much of the post-2007 decline is reversible, something which is central to the policy debate. The key finding of this paper is that while around ¼–? of the post-2007 decline is reversible, the LFPR will continue to decline given population aging. This paper’s measure of the “employment gap” also suggests that labor market slack remains and will only decline gradually, pointing to a still important role for stimulative macro-economic policies to help reach full employment. In addition, given the continued downward pressure on the LFPR, labor supply measures will be an essential component of the strategy to boost potential growth. Finally, stimulative macroeconomic and labor supply policies should also help reduce the scope for further hysteresis effects to develop (e.g., loss of skills, discouragement).
Mr. Ravi Balakrishnan, Mai Dao, Mr. Juan Sole, and Jeremy Zook

-finding prospects. IV. Youths, SSDI, and Older Workers Participation rate trends for youths and older workers and the impact of rising SSDI recipients are key components of the aggregate LFPR picture. However, disentangling how much of their respective changes since 2007 is cyclical, structural, or reversible is a complex issue. This section explores potential explanatory factors behind the behavior of these groups. A. Youths The majority of the reduction in youth participation rates is explained by the decline in those working while studying. Total school

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper on the United States of America examines the recent US labor force penetration rate (LFPR) dynamics. LFPR dynamics can be driven by structural factors and cyclical ones related to job prospects. With participation rates for older workers lower than for prime age workers, demographic models suggest that aging of the baby boom generation explains about 50 percent of the near 3p.p. LFPR decline during 2007–2013. State-level panel regression analysis is used to tie down the cyclical effect, which is estimated to account for about 30–40 percent of the decline. Significant remaining slack in the labor market points to an important role for macroeconomic and labor supply policies. This suggests a still important role for stimulative macroeconomic policies to help reach full employment. Macroeconomic policy should remain accommodative for a while given sizeable labor market slack. This slack goes beyond that signaled by the unemployment rate and takes account of the LFPR being below trend and many employees working part time ‘involuntarily’.