Labor Force Participation Rate

Heritage Foundation

Published in

2014 Index of Culture and Opportunity

4 min readJul 7, 2015

From 2003 to 2013, the labor force participation rate for adults ages 25 to 54 fell by 2 percentage points.

Not Looking for Work: Labor Force Participation and Opportunity

By James Sherk

The labor force participation (LFP) rate is defined as the proportion of adults with a job or who are actively seeking one. A higher labor force participation rate among those capable of working indicates a greater willingness to work or a greater availability of work opportunities. Many factors affect the LFP rate:

Age: Older Americans are less likely than prime age workers (ages 25 to 54) to participate in the workforce and much more likely to leave the labor force for retirement.
Economic conditions: The LFP rate does not necessarily measure the health of the economy, since adults stop working for many reasons. However, labor force participation often decreases during a down economy as some workers give up on finding employment.
Disability benefits: Enrollment in Social Security Disability Insurance (SSDI) has steadily increased since Congress relaxed eligibility in the mid-1980s. Application rates further spike during recessions. Six percent of the adult population — and over a tenth of those without a high school education — now collect SSDI instead of working.
Government assistance: Means-tested government welfare programs that are not prop-erly designed can discourage work by enabling individuals to depend on government rather than seeking self-sufficiency by participating in the labor force. This applies to individuals further up the income scale as well. University of Chicago economist Casey Mulligan has found that between taxes and the loss of Obamacare exchange subsidies the median household in 2015 will keep only half of each additional dollar they earn. Government programs can discourage labor force participation and reduce work-effort by Americans well above the poverty level.
School enrollment: Since 2007, the proportion of Americans enrolled in school and outside the labor force has increased sharply. In part this increase reflects the difficulty many students have had in finding part-time jobs. But the weak labor market has also caused more Americans to stick with their studies in the hope of getting a better job when they graduate.

It is important to focus on measures of labor force participation that reflect changes in opportunity and dependence. Breaking down the rate by educational attainment shows more educated Americans remain far more strongly attached to the labor market than less educated Americans. Americans ages 25 to 54 are most likely to be working and least likely to be enrolled in school or retired, resulting in a much higher LFP than the overall rate.

U.S. labor force participation began falling gradually in 2000 — a decline that accelerated sharply after the onset of the Great Recession. Demographic changes accounted for most of the drop before the recession, but only for about a quarter of the decline afterward; increased enrollment in SSDI and school account for most of the remaining post-recession LFP drop. While many of those enrolled in school will re-enter the labor market, very few who begin collecting disability benefits ever return to work. Increased SSDI enrollments probably represent a permanent increase in dependence on the government. Obamacare will further reduce the reward for working: The Congressional Budget Office estimates this new law will cause 2.5 million workers to exit the labor force.

— James Sherk is Senior Policy Analyst in Labor Economics in the Center for Data Analysis, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.