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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).
International Monetary Fund

.0 Sources: Bureau of Labor Statistics, Household Employment Survey; and IMF staff estimations. 1 (a) population share shift; (b) participation rate shift. 2 The cumulative interaction term for this group is −0.1 in 2013. 3 Comprises all other ethnic groups, including non-Hispanic whites and Asians. The cumulative interaction term for this group is 0.18 in 2013. Notably, since 2000, all Hispanic groups made positive contributions to the aggregate participation rate via higher population shares. However, Mexican Americans and “other

International Monetary Fund. Western Hemisphere Dept.

group . 2 The total change in the participation rate with respect to a base year can be approximated as the sum of (a) changes in the population share of each group weighted by their base-year participation rate (the so-called population share shift or “demographic effect”); and (b) changes in the participation rate of each group weighted by their base-year population share (the so-called participation rate shift): ( 1 ) p t − p 0 ≈ Σ g { p 0 g ( s

Mr. Ravi Balakrishnan, Mai Dao, Mr. Juan Sole, and Jeremy Zook

. 3 The total change in the participation rate with respect to a base year can be approximated as the sum of (a) changes in the population share of each group weighted by their base-year participation rate (the so-called population share shift or “demographic effect”); and (b) changes in the participation rate of each group weighted by their base-year population share (the so-called participation rate shift): ( 1 ) p t − p 0 ≈ Σ g { p 0 g ( s t

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’.
International Monetary Fund. Research Dept.

participation rates: shifts in the age structure of the population and changes in the labor force attachment of individuals of different ages. Labor force participation varies considerably over a person’s life, rising rapidly in adolescence, flattening through the working years, and falling with age and retirement. Hence, shifts in the age distribution are an important driver of movements in the aggregate participation rate. These shifts have become particularly pronounced in the past decade in advanced economies ( Figure 2.1 , panel 3) as the exceptionally large cohort of

International Monetary Fund. European Dept.
The fallout from the war in Ukraine has hit the German economy before it regained its pre-pandemic GDP level, with effects running through higher energy costs, the possibility of gas shortages and broader supply disruptions, and weaker confidence. Consumer price inflation has spiked above 8 percent, largely because of energy price increases, but inflation pressures are becoming more widespread.