The rate of participation in labor force will not fall

Two years ago we published a post with a model describing the evolution of labor force participation rate, LFP, in developed countries. Among other countries, we presented a prediction for the U.S. Figure 1 reproduces the evolution of observed and predicted LFP in the United States as predicted in 2008. The predicted curve was obtained directly from real GDP per capita (see this article for details). Both curves in Figure 1 almost coincide between 1960 and 2007. The largest deviations are observed in the years of biggest revisions to the LFP after decennial censuses. Therefore, they can be neglected as having artificial character. The predicted curve shows that the LFP should decrease after 2006 - the last year with the LFP estimates available when the model was developed.

Figure 1. Observed and predicted LFP in the U.S. as described in 2008.  Notice the largest deviation between the curves is associated with the years of major revisions to the LFP - 1980 and 1990.

Using the same model we revisited the model and obtained a new prediction for the past four years and also two years ahead. Figure 2 compares the predicted and observed LFP curves in the U.S. The prediction for the years between 2007 and 2010 is excellent. In 2011 and 2012, the rate of participation is expected to stall near 64.5%.

Figure 2. Observed and predicted LFP in the U.S. The years between 2007 and 2010 are well predicted.