Retiring baby boomers are the culprits behind a significant decline in the labor force participation rate (LFPR) in the U.S. over the last dozen years, according to a new study by the Federal Reserve Bank of Chicago.
The Great Recession and tepid economic recovery have been widely blamed for job market weakness. But just under half of the decline in the proportion of the working-age population that is employed, or unemployed and seeking work, is because of shifting demographics, according to the analysis by staff economists Daniel Aaronson, Jonathan Davis and Luojia Hu in the Chicago Fed's March 2012 "Essay On Issues."
The aggregate LFPR stood at 64 percent in December 2011, a decline of 3.3 percent since its peak in 2000, the authors note. That cumulative drop is more than twice as large as any since World War II. Both baby boomers and teenagers are playing a role in the falling figures.
"At least two demographic factors have contributed to this decline," the authors write. "First, in 1996 the first baby boomers turned 50 -- an age when labor force participation traditionally peaks. Since that time, a growing number of baby boomers have transitioned out of the labor force. Second, there has been a longrunning downward shift in teen work activity -- which picked up speed during the latter half of the 2000s."
Experts suggest the labor force demographic trend will also play out in the investing world. "The front end of the baby boomer generation is starting to take money out, and that could become a big headwind for the stock market," David Foot, a professor at the University of Toronto and author of "Boom, Bust & Echo," told Reuters in January. "In the short-term, the economy drives market returns. But over the long-term, demographics dominates as the major determinant -- and its impact is very hard to offset."
But while the Chicago Fed researchers are forecasting a continuing trend -- estimating a LFPR rate of 65.4 percent in 2020 -- anecdotal evidence suggests economic and personal factors may keep baby boomers on the job. Clearly the recession took a toll on employment, housing values and savings, requiring millions of post 50s to remain in the workforce longer than they expected.
A recent survey by the AARP Public Policy Institute found 57 percent of older workers, jobseekers, and recent labor force participants reported that they were less confident than before the recession that they will have enough money to live comfortably throughout their retirement years.
Those worries are translating into continued work: Nearly 18 percent of people 65 and older participated in the workforce in 2011, compared with 11 percent in 1985, according to the AARP. In addition, a Wells Fargo survey found one-quarter of respondents expect to be working into their 80s.
Moreover, there's the fulfillment factor: People who remain engaged by work and other activities are happier, according to a recent study by Boston College's Sloan Center on Aging & Work. The center found that people age 50 and 64 who were involved in paid employment had significantly higher wellbeing scores than those who were not.
As 93-year-old Edward Gerjuoy, an emeritus professor in the physics and astronomy department at the University of Pittsburgh, told USA Today: "I really feel that working keeps me youthful. But even more than that, I feel if you're here, you should have some function in life. I think this idea that one owes something to society has grown on me."