Meet the Author

Timothy Dunne |

Vice President

Timothy Dunne

Timothy Dunne is a former vice president and economist of the Federal Reserve Bank of Cleveland.

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Meet the Author

Kyle Fee |

Economic Analyst

Kyle Fee

Kyle Fee is an economic analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include economic development, regional economics and economic geography.

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03.12.08

Economic Trends

Labor Force Participation in the United States and Ohio

Tim Dunne and Kyle Fee

A key determinant of the size of the labor force is the labor force participation rate. The labor force participation rate is the fraction of the working age population (16-year olds and up) that is currently employed or actively looking for employment. Changes in the labor force participation rate along with the growth in the population determine the growth in the labor force. For the nation as a whole, the labor force participation rate has risen markedly since World War II. This rise is well documented and is due primarily to the increased participation of women in the labor force and the U.S. baby boom after WWII. 

Ohio has also experienced a substantial rise in its labor force. Closing out the last century, the gains in Ohio’s rate of labor force participation were similar to those of the nation as a whole. From 1980 through 2000, the U.S. rate rose 3.4 percentage points, and Ohio’s rose 3.7 percentage points. However, from 2000 to 2006, the national labor force participation rate dropped 1 percent to 66.2 percent, while Ohio’s edged up 0.1 percent to 67.2.

Labor Force Participation Rates

What is behind these recent patterns in labor force participation rates? Several studies have noted that important shifts in the labor force participation rates of specific age groups have affected overall labor force participation rates. The table below illustrates this observation by disaggregating labor force participation rates into different age groups for the years 2000 and 2006. For workers under the age of 55, labor force participation rates fell or held steady in the United States as well as in Ohio. For workers over the age of 55, participation rates rose. Somewhat surprisingly, labor force participation for individuals in the 16 to 19 age group drops quite a bit. Nationally, the labor force participation rate of these younger workers fell 8.5 percentage points, roughly 16 percent—a very large downward shift for this group. Ohio has also experienced a relatively large drop in labor force participation for this age group, though not as large as the U.S. decline. Alternatively, older workers have markedly increased their participation rates. Workers aged 55 to 64 increased their labor force participation by 4.5 percentage points across the United States and by 6.8 percentage points in Ohio. This rise in the labor force participation of older workers is a more recent phenomenon, having begun in the mid-1990s.

Labor Force Participation Rates

  U.S. Ohio
Age
2000 2006 2000 2006
16 to 19
52.2
43.7
58.9
53.0
20 to 24
77.9
74.6
81.3
77.1
25 to 34
84.6
83.0
85.3
84.5
35 to 44
84.8
83.8
85.1
85.1
45 to 54
82.6
81.9
83.2
82.1
55 to 64
59.2
63.7
57.3
64.1
65+
12.8
15.4
12.4
14
Total
67.2
66.2
67.1
67.2

Source: Current Population Survey.

In order to see which age groups of workers have had the largest impact on changes in labor force participation rates over the 2000–2006 period, we do a decomposition analysis. The analysis separates the changes in overall labor force participation rates into two sources: one is that the participation rates of different age groups could be changing, and two is that the share of workers in each group could be growing or shrinking. For example, the labor force participation rates for age groups could hold steady but if the share of workers in high labor-force-participation groups fell (age groups 25 through 54), then overall labor force participation rates could fall. For each age group, the charts below decompose the contribution to the overall change into the part that is due to changes in labor force participation rates for the group and the part that is due to changes in the age group’s share of workers. Bars that extend out from the center to the left indicate a negative impact on the labor force participation rate and bars that extend out to the right show a positive effect. Green bars show the impact of a change in the share of workers in an age group, blue bars show the effect of change in the labor force participation rate for the group, and red bars show the effect of the aggregate effect.

US Labor Force Participation Rate Decomposition, 2000-2006

The U.S. decomposition shows that the largest negative impact on the labor force participation rate comes from the 35 to 44 age group. Driving the negative effect is the share of workers (the long green bar).While the participation rates of workers aged 35 to 44 are very high, their falling share of the overall labor force has acted to lower the overall labor force participation rate. The youngest age group also has a substantial negative effect on overall labor force participation. However, its effect is driven by the fact that the labor force participation rate has fallen sharply for this group, while the change in the share of workers makes less of a contribution. On the positive side, the rise in the share of workers aged 45 through 64 has acted to increase the nation’s labor force participation. On balance, though, the overall effect (the last set of bars on the chart) is negative, with both changes in shares and labor force participation rates acting to lower the overall U.S. labor force participation rate.

In the case of Ohio, the patterns are roughly similar with a few key differences. The share of workers in the 45–54 age group grew strongly in Ohio, and this accounted for a substantial fraction of the rise in the labor force in Ohio. While this group behaved in the same way in the nation as a whole, its impact was much weaker. A difference between Ohio and the U.S. emerges in the 20–24 age group, which had a slight positive impact on labor force participation in Ohio but a net negative effect for the nation. Finally, similar to the national story, changes in labor force participation patterns for the youngest group of workers exerted an overall drag on Ohio’s labor force participation rate. 

Ohio Labor Force Participation Rate Decomposition, 2000-2006