Grim news. The labor force participation rate in the USA on its free fall to 58% in 2030

We have presented in this blog the concept of Kondratiev wave many times.  The essence of Kondratiev’s approach consists in the existence of very long period (60 to 80 years) social/demographics, and thus, economic waves. The term “wave” is used to express the periodic character in the evolution of economic parameters with approximately constant amplitude.

The figure below shows the evolution of the labor force participation rate, LFPR,  in the USA since the 1950s, when a stationary economic regime was established after WWII.  In order to predict the future development in the LFPR, we use the principal characteristic of periodicity – symmetry relative to peak points. The black curve in the figure represents the BLS data. The most recent value of 61.6% for June 2021 was published on July 2. We present annual readings to iron out the short-term variations. The red line represents the black one inverted in time and synchronized near the peak around 2000. The red line is the prediction of the future LFPR.

Originally, we presented such a curve in 2004-2006, i.e. very close to the peak value, with the same prediction of the long-term decrease in the LFPR to below 60% near 2030. Fifteen years of gradual fall in the LFPR match our prediction extremely accurately. The force of natural oscillations in the demographic, social, and economic evolution is unbeatable.

The recovery of employment in the USA after the deep fall in the 2020 pandemic is not accompanied by a significant increase in the LFPR – the June 2021 value (61.6%) is below the average in 2020 (61.7%).  With the falling LFPR, the rate of unemployment has to be considered in a different way. The fall from 67.1% in 1999 to 61.7% in 2020 means that that 4.4% of the civilian noninstitutional population, CNP, left the labor force by various reasons. With the estimated CNP of 260,000,000 in 2020, one has almost 6,000,000 less than expected with the peak LFPR observed in 1999. The number of unemployed is around 9,500,000 in June 2021.  If to consider these 6,000,000 as unemployed instead of leaving the labor force, one would obtain the rate of unemployment of 9.2% (15,500,000 unemployed with the civilian labor force of 167,000,000! Therefore, the effect of leaving the labor force may be more dramatic than the unemployment itself in the near future when the LFPR will fall to 58%.

The US economy is on a recovery path after the pandemic. The 10-year forecast is not so bright, however. The labor force participation rate will be falling.