Over the last two decades, the labor force participation rate has been shrinking. Before the onset of the COVID-19 pandemic, the main drivers of the decline tended to be generational. However, COVID-19 amplified existing pressures and introduced new ones. Early retirements, lack of child care, drug and alcohol addictions, and workplace safety concerns were among the significant factors that contributed to a worker exodus. But despite the recent economic resurgence, the outlook for the labor force remains uncertain.
As vaccination rates have increased, so too has demand for in-person services. Leisure and hospitality jobs saw the greatest resurgence since the pandemic began, posting a nearly 20% gain in jobs from December 2020 to December 2021. However, the return of workers to service-oriented jobs has been outpaced by demand. This led to some employers seeking relief through automation and the use of artificial intelligence.
The early massive layoffs and unemployment caused by the pandemic spurred many workers to change occupations altogether. A 2021 study by the Pew Research Center found that 66% of unemployed adults seriously considered changing their occupation or field of work. Workers in low-wage occupations, such as now in-demand food service positions, were hit particularly hard. Although most unemployed adults believe they have the education and training necessary to get a job, a majority also say they are not confident they will find a job with the same income and benefits, according to the Pew study. The immediate challenges facing employers raise inflationary fears, economists say. For example, how do employers attract workers back into lower-paying jobs without increasing labor costs?
Retiring baby boomers are a key noncyclical factor in the shrinking labor force. Beginning around 2018, the number of working-age adults began shrinking for the first time in decades, largely driven by baby boomers aging out of the working population. Baby boomers have “consistently represented the largest fraction of the population,” according to the BLS, “and their influence is still being felt as they retire, depressing the labor force participation rate.”
At the time of the BLS’s writing in 2018, the labor force participation rate was 62.9%, with an expected decrease to 59% by the late 2020s. When the pandemic began, the labor force participation rate plummeted from 63.4% to 60.2%. However, that drop largely reflects the impact of short-term disruptions on the labor landscape. The labor force participation rate has since bounced back to 61.9% but can still be expected to gradually decline.
Falling birth rates will also contribute to a smaller workforce in the future, with 2020 having the most significant drop in births in nearly 50 years. That and the fact that 2021 saw the slowest population gain in the country’s history, means the smaller pool of working-age adults is likely to persist. These long-term demographic shifts may skew the labor force participation rate as more people retire faster than others join the labor force. In short, the pandemic sped up and exacerbated existing long-term generational trends.