Don’t Blame Baby Boomers for the Shrinking Labor Pool

Labor force participation is waning, but it’s not because hordes of boomers are retiring.

Feb 23, 2014 at 9:30AM

The declining labor force participation rate has been getting a lot of attention lately, particularly as the national unemployment rate edges downward, even as more people drop out of the workforce.

Why are fewer people who truly want to work actively looking for employment? One theory posits the baby boomer generation is responsible, as its aging members enter retirement. I disagree, for one stunningly simple reason: Boomers are remaining gainfully employed, even after they reach the traditional age of retirement.

Older workers have lower unemployment than the young
Interestingly, workers aged 55 and over -- a good portion of the baby boomer contingent -- have the lowest rate of unemployment of all age groups as of January, at a teensy 4.5%. Conversely, workers aged 16 to 19 years face a jobless rate of 20.7%, and those aged 20 to 24 years suffer a rate of joblessness that borders on 12%.

That's not all. As boomers age, experts expect they will remain in the workforce longer. The latest Occupational Outlook publication from the Bureau of Labor Statistics predicts that workers aged 65 to 74 years will increase their workforce participation by 5.6% through the year 2022, whereas those 75 and older will increase their workplace presence by an astounding 6.4%:

Labor Force Growth Rate, 2012-2022

Source: Bureau of Labor Statistics.

Meanwhile, the age groups declining the most is the youngest contingent of workers, and those considered to be in their prime -- workers aged 45 to 54 years.

Age-related participation rates matter
Recent research from the Center for Retirement Research at Boston College purports that the declining labor participation rate began to speed up as early as 2000, rather than as a consequence of the Great Recession. The author of the study, Alicia H. Munnell, opines that the aging of the working population means that people are moving into higher age categories that have lower worker participation rates, which is lowering the overall rate -- something that will continue until 2020.

This theory has some legs. In 2012, for instance, the labor force participation rates for those aged 16 to 24 was 54.9%, while those aged 25 to 54 logged a much higher rate of 81.4%. In the age group 55 to 64, however, the rate is 64.5% -- lower than the middle group of workers, but still much higher than that of the youngest cohort. Currently, though, the boomer category still tops the current overall rate of 63%.

An aging population will surely influence the worker participation rate to some degree, but the post-financial crisis recession had a much larger effect than the Boston College paper gives it credit for. From 2000 through 2008, for example, the monthly labor force participation rate stayed above 66%, with only 14 exceptions. By January 2009, though, the rate was consistently below 66%, and quickly fell to 64% and below, where it stands now.

A tattered economy, with many fewer job opportunities, seems the best candidate for the principal reason behind the draining of the labor pool. Don't blame the baby boomers -- they're still pulling their weight, often well into their golden years.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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