7/4/14

Labor force participation rate will fall to 59%

A year ago we presented a description of secular fall in the labor force participation rate, LFPR, measured by the Bureau of Labor Statistics. The LFPR (the portion of people in labor force) for the working age population (16 years of age and over) has been on a long-term decline since 1995. We predicted the fall down to 59% by 2025. Here we revisit this projection and find that our forecast was correct – the rate has decreased by 0.6% (from 64.4% to 62.8%). This is a dramatic drop considering the level of labor force of 155 million.
 
Following the Kondratiev wave approach (the Russian economist Kondratiev introduced long-period (50 to 60 years) waves in economic evolution – see Figure 1) we interpolated the observed LFPR curve by a sinus function with a period of ~70 years. We added 11 LFPR readings published since July 2013 and show the updated curve in Figure 2. New data fit the predicted curve.  The trough of the model function is expected in 2030 and the bottom rate is 58.5%.

 
 

Figure 1. The Kondratiev wave

Figure 2. The actual LFPR curve (red) and that predicted by sinus function with a period of ~70 years.

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