White House report says declining participation in labour force had pre-recession roots

WASHINGTON – Declaring the Great Recession only partly to blame, White House economists say the increasing number of Americans dropping out of the labour force dampens economic growth and demands policy changes that create more job opportunities and add workers.

In a new report released Thursday, President Barack Obama’s Council of Economic Advisers point to an aging population as the biggest single factor contributing to the lowest participation rate in 36 years. The report also says the elevated unemployment rate, which climbed to 10 per cent in 2009, drove workers to put off looking for a job.

But they say other factors might be at play, including long-term declining rates for 24- to 54-year-old men and a more recent decline in the participation in the labour force by women.

The decline in the labour force — currently at 62.8 per cent compared to a high of 67.3 per cent in 2000 — has been one of the more baffling indicators to emerge during the economic recovery, clouding an otherwise improving jobs picture. The participation rate has declined even as companies have increased hiring and as the unemployment rate has declined.

Obama critics have often pointed to the number of Americans dropping out of the labour force as evidence that his economic policies aren’t working.

But Jason Furman, chairman of the Council of Economic Advisers, said a voluntarily retiring aging population and the trends showing a decline in participation by some workers precede the Great Recession. Indeed, some economists were even predicting the current level of participation before the recession and the financial crisis hit in 2008.

“The participation rate is one of the most puzzling and misunderstood aspects of the economy,” Furman said Thursday.

“But the declining participation rate also subtracts from potential economic growth and exacerbates our future fiscal challenges,” he said.

The report presented the White House with an opportunity to push for its economic agenda.

Furman said the most effective response to a declining labour participation rate would be a comprehensive overhaul of immigration laws that would increase the size of the labour force. The Congressional Budget Office has estimated that an immigration overhaul that passed in the Democratic-controlled Senate last year would add 6 million workers to the labour force by 2023. Republican leaders in the GOP-controlled House have said they do not intend to vote on an immigration bill this year.

Furman said other Obama pushed measures would help, including an increase in the minimum wage and a long-term, $302 billion transportation infrastructure plan.

The report comes just a day after Federal Reserve Chair Janet Yellen testified before Congress that the labour force participation appears weaker than should be expected.

“Demographics and an aging population is driving and should be expected to drive the labour force participation rate down,” she told the House Financial Services Committee. “So the question is, has labour force participation fallen more than would be expected based on demographics? And my personal judgment is yes, it’s fallen somewhat more than that.”