1: This is the one group with a truly unusual drop in LFP. Some of this is a part of a long term cultural shift toward longer time spent in education. But, the shock specific to the current time period was the 3 hikes in the minimum wage from 2007 to 2009. In 2006, about 4% of the 16-24 year old labor force worked at or below the federal minimum wage. By 2010, that was up to 10%.
Here is the 16-24 year old LFP rate, from the BLS:
Note how LFP in this age group dropped precipitously from 2007-2009, and has been flat since then. This is a distinctly different character from the other age groups. Minimum wages affect a larger proportion of this age group compared to the other age groups.
The unusual decline in this age group can be attributed to the minimum wage, but that shock to labor demand ended 4 years ago.
2: The movements in the 45+ age groups have, on net, been positive, and mostly reflect the undulations of boomer populations through these groups and the tendency of baby boomers to work later than earlier generations. So, this group has seen an anomalous net increase in labor force participation during a cyclical downturn.
3: This group represents the heart of the labor force, and the age group LFP declines appear to still be damning, even when looking at the age groups. The average LFP drop here has been about 1.9% since 2007. But, there are additional adjustments that need to be made.
A) There has been a long-standing secular decline in the LFP of each age group of more than 1% per decade, which was temporarily countered by the increase in female participation which lasted until the early 1990's. It has now been 6 years since 2007, so even within age groups, we should expect trend LFP to have decreased by about 0.7% during this time for reasons unrelated to short term cyclical or structural issues.
B) The 2007 labor market was very strong and LFP at the time was significantly above trend. This was not commonly recognized because the trend was declining due to the aging workforce. But, since the 2005-2007 period is widely recognized as a boom-time, it should not be difficult to believe that LFP was at least 0.5% above trend. We could have experienced a shallow recession with unemployment topping out around 6%, and an age-group specific decline of 0.5% back to trend would have been reasonable. This is roughly what happened during 2001-2002.
These two adjustments leave us with about a 0.7% decline in LFP, below trend, which can be attributed to short term issues.
Long term secular declines as well as demographic issues will continue to weigh down on LFP at a rate of up to 0.3% or so, annually, for the time being. So, if LFP simply stops declining, much as it did from 2003 to 2007, we will be back above trend by 2016.
Obamacare, or some other structural issue, could prevent that kind of recovery in LFP. But, in assessing those effects, we need to be careful in adjusting LFP for all of these other issues. The fully adjusted LFP rate is, at most, a few tenths of a percent lower than normal cyclical fluctuations would portend (