The incredible shrinking labor force, in one chart

The U.S. labor force is shrinking. Back in 2007, 66 percent of Americans had a job or were actively seeking work. Today, that number is at 63 percent and falling.

My colleague Jim Tankersley had a smart story on this trend over the weekend, but I'll also add in this chart from Derek Thompson. It breaks down the labor force decline by age group and offers one of the clearest illustrations of what's happening:

Labor force participation rates for younger workers, ages 16 to 54, has been dropping sharply for a number of reasons — some good, some terrible. Younger people are more likely to stay in school than they used to. But the terrible economy is also keeping some people at home. The decline of manufacturing has left many older workers unable to find new jobs. And, as we've seen, some workers are moving to disability programs.

On the flip side, the labor force participation rate for older workers, age 55 and up, has been rising of late. People who were near retirement saw their savings evaporate after the financial crisis, so some of them are now working longer to repair the damage.

But when you combine those together, you get a net drop. Older Americans are still very unlikely to work. And so, as the United States ages, and more Baby Boomers shift into that 55-and-older cohort, the overall labor force participation rate drops. As Bill McBride explains here, "The recent decline in the participation rate was mostly expected, and most of the decline in the participation rate was due to changing demographics."

The posts from Thompson and McBride offer very clear explanations of this trend, so read both. McBride mostly focuses on the demographics. Thompson argues that the biggest factors, in order, are retirement, college, the recession and manufacturing.

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