Aging U.S. demographics jolt labor market data
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America's aging population is muddying a headline signal of labor market health.
- The clearest sign yet: The share of people working or looking for work has fallen sharply, with the nation's shifting demographics helping drive the decline.
Why it matters: The plunge in participation might normally be an ominous signal at a time when hiring has already slowed.
- But sweeping shifts in demographics — as well as immigration and technology — make it harder to tell whether familiar economic signals reflect structural change or the normal ups and downs of the business cycle.
Tom Barkin, president of the Federal Reserve Bank of Richmond, pointed to the puzzle in a speech Thursday morning, calling the labor market one of the economy's "mysteries."
- Labor supply is slowing alongside demand as immigration plunges and baby boomers retire. "[W]hile there may be fewer jobs being added, there are also fewer people looking for those jobs," Barkin said.
By the numbers: The labor force participation rate — the share of the population working or looking for work — fell to 61.4% in July from 61.8% in May and 62.2% a year earlier.
- Excluding the pandemic-era plunge, that's the lowest level since 1976.
Zoom in: Roughly two-thirds of the 0.8 percentage-point decline in labor force participation over the past year — 0.55 point — reflects a shift in the population toward older Americans, according to Employ America's calculations.
- Participation is just under 60% among 60-to-64-year-olds, but less than 20% among those 65 and older, meaning that the national rate gets pulled lower as more Americans age into the older cohort.
- Economist Jed Kolko finds that the drop in participation among those 55 and older reflects boomers aging into the older end of that group, not an increase in early retirements.
Context: The participation drop over the past year is comparable to the declines seen around the Great Recession, Employ America senior economist Preston Mui tells Axios — the kind of move that would typically flash a much more ominous signal about the labor market.
- "If you're not careful, you can get head-faked by some of this stuff," Mui says.
The intrigue: Employ America notes that the decline in participation has not been met with a corresponding increase in would-be workers sitting on the sidelines.
- The number of people outside the labor force who say they want a job has been falling in recent months, hitting 5.9 million in July compared with the 6.2 million who said the same in May, according to the Labor Department.
Zoom out: The demographic shift is slow-moving, but this year it showed up abruptly in the jobs data when the government updated its population estimates.
- Every January, the government updates the population estimates used in the household survey that underpins labor force and unemployment data.
- This year's revision increased the estimated share of people 65 and older by 0.62 percentage point — more than a typical year's worth of aging in a single month, according to the St. Louis Fed.
- That population didn't suddenly get older in January: The revision effectively caught the data up to an aging trend that had been building over time.
- The St. Louis Fed estimates that the one-time adjustment accounts for 43% of the decline in participation between December and June, while ongoing aging accounts for another 16%.
The bottom line: The U.S. is undergoing a demographic transition big enough to shift the interpretation of a key economic gauge.
- As the massive baby boomer generation moves deeper into retirement age, the headline participation rate is likely to face persistent downward pressure even if Americans at any given age remain just as likely to work.
