U.S. WORKFORCE

We'd better fully utilize labor pool

Prior to the "Great Recession," two-thirds of working-age Americans were either working or seeking work. But since 2007, when it averaged 66 percent, the labor-force participation rate has plunged by 3 percentage points through the first half of this year, and the decline continued even after the admittedly subpar recovery began. In August, just 62.8 percent of the working-age population was in the labor force, according to the Bureau of Labor Statistics, and there is a real possibility that labor-force participation may never return to its pre-crisis level. This threatens prosperity for two related reasons: a permanently smaller labor supply means a reduction in the economy's capacity to grow; and the smaller economic pie will have to be shared with a larger "dependent" — i.e., non-working — population.

It's such a central issue that a standing-room-only audience assembled recently at the Brookings Institution to hear the latest research results from five top Fed economists (affiliated with the central bank but not speaking on behalf of it). Their study suggests that three-quarters of the drop in labor-force participation during the recession is due to long-term demographic factors — especially the aging of the population; the recession coincided with the first baby boomers retiring — that had already been at work prior to the crisis. This, in turn, implies that the Fed can't do much more in the short run and that, over the long run, the United States is going to have to get much smarter, and more aggressive, about getting the most out of its labor pool. The Fed economists project that labor-force participation will fall to 61 percent by 2022, consistent with previous estimates by the Labor Department and Congressional Budget Office.

FROM AN EDITORIAL IN THE WASHINGTON POST