Projecting labor force participation beyond COVID
Executive Summary
Labor force participation has cratered since the onset of thepandemic. In November, 4.1millionfewer individuals were employed or looking for work compared to February. We expect the unique challenges posed to labor force participation by COVID to abate this year, but how will the participation rate evolve in thepost-pandemic world?
We expect labor force participation to improve within all age groups in the coming years. As health concerns and childcare issues subside, more individuals are expected to be available for work. Furthermore, stronger economic activity should pull workers who are discouragedover current job prospects back into the labor force. Yet the rebound in the labor force participation rate will be constrained by the rapid aging of the U.S. population.
In this note, we illustrate four scenarios for the labor force participation rate in the years ahead,which all reflect the country’s aging demographics. Even under what we consider to be our most realistic scenarios, which allow for both a cyclical rebound in participation and a boost from positive secular trends (such astheability towork from home), the labor force participation rate would not recover to its 2019rate until the second half of the decade. The lengthy recovery underscores the prospect that the economy’s potential rate of growth likely will remain constrained by slow growth in the labor supplyafter the pandemic.
Where Has Participation Been?
On the eve of the pandemic, U.S. labor force participation had climbed to a seven-year high. Yet,the participation rate tumbled in the spring as most of the country imposed stay-at-home orders. Subsequently, the participation rate has partially recovered, but it remains nearly twopoints below its February rate (Figure 1). The drop equates to 4.1millionfewer individuals working or searching for a job. What’s more, there has beenno meaningful improvement in recent months, with the participation rate in November slipping back to its June level.
Author
Wells Fargo Research Team
Wells Fargo
