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A behavioral model for projecting the labor force participation rate
Mitra Toossi
Mitra Toossi is an economist in the Office of Occupational Statistics and Employment Projections, Bureau of Labor Statistics. E-mail: toossi.mitra@bls.gov.
Various factors, including economic cycles, wages, school enrollment, and marital status, affect the participation of different groups of workers in the labor force; a behavioral model that accounts for these variables yields results similar to those obtained from the current BLS model used to project the labor force participation rate
Economic growth depends primarily on changes in two factors: the growth of the labor force and changes in labor force productivity. The entry of large numbers of baby boomers into the U.S. labor market, coupled with the rapid increase in women's labor force participation rates during the 1970s and 1980s, resulted in a sizable increase in the supply of the labor force and contributed considerably to the economic growth of that period. Consequently, of the 3.2-percent annual rate of growth of gross domestic product (GDP) over that period, 2.5 percent was attributable to labor force growth and 0.7 percent resulted from changes in labor productivity. 1 Growth in labor productivity, however, has been considerably greater since then. During the 1991–2001 period, out of the 3.1-percent annual growth of GDP, 1.2 percent was the result of labor force growth and the remaining 1.9 percent was attributable to rising productivity growth. More recently, out of the 2.7-percent growth of GDP over the 2002–09 timeframe, the labor force grew at a rate of 1.0 percent while productivity growth was 1.7 percent. 2 Because the growth of the labor supply has such a significant impact on economic growth, projecting the size and composition of the labor force is a major task in macroeconomic forecasting. The Bureau of Labor Statistics publishes medium-term, or 10-year, labor force projections every 2 years. The Bureau takes a long-term view by assuming a long-run full-employment economy in which unemployment is frictional and not a consequence of deficient demand. 3 The projected labor supply in the BLS model is a product of two factors: the size and growth of the population, by age, gender, race, and ethnicity; and the future trend of labor force participation rates—that is, the percentages of the civilian noninstitutional population in various age, gender, race, and ethnic groups that are in the labor force.
1 The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Congressional Budget Office, January 2010) (see especially p. 39), www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf (visited Mar. 7, 2010).
2 Ibid., p. 39.
3 For further information, see "Employment Projections," chapter 13 in BLS Handbook of Methods (U.S. Bureau of Labor Statistics, 1999), www.bls.gov/opub/hom/homch13.htm (visited Feb. 7, 2010).
Employment Projections Program
Labor force projections to 2018: older workers staying more active—Nov. 2009.
Labor force projections to 2016: more workers in their golden years—Nov. 2007.
Labor force projections to 2014: retiring boomers.—Nov. 2005.
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