Recent Trends in the Labor Force: Part 2 – Gender

By Francis P. Rybinski, CFA, Chief Macro Strategist & D. Harris Kere, CFA, Investment Strategist

The labor force participation rate (LFPR), which measures the number of people available to work as a percentage of the total population, is a very telling number about trends in a country's labor force. It paints a picture of economic conditions and shifting social norms, while influencing unemployment rates, projected economic growth, and government policy.

Over the last 20 years, a steep decline in LFPR around the globe has become a major cause for concern. Birth rates have dropped and populations are seeing a greater increase in their aging population. Countries like Japan are employing the overwhelming majority of their aging workers in jobs with menial tasks to help offset their labor shortage. The US saw LFPR peak around the millennium, but the decline has accelerated since the financial crisis of 2007. In the first installment in this series, we explored the aging baby boomer population and the hit LFPR has taken as a result of the retirement wave of this segment of the workforce. In the second part of this series, we will explore the differences in the labor force participation rate as it relates to gender.

Our method

In order to determine the effect that each gender has on the participation rate, we isolated the workforce into four groups: men aged 16-64, men aged 65 and older; women aged 16-64, and women aged 65 and older. We then froze the participation rate for each age group by gender to its December 2007 level while allowing each group's proportion to the overall labor force to fluctuate. To isolate the effect of the changing participation rates within the age groups on the overall participation rate, independent of demographic changes, we allowed group participation rates to fluctuate and froze compositional shifts.

Our findings

While we already concluded that aging has weighed heavily on the overall participation rate, we found there was a significant difference in the drop in the participation rate when it is broken down by gender.

Post-crisis trends in the workforce among men

Following the financial crisis in 2010, we saw a decline in the workforce participation rate among males (Exhibit 1). Specifically, we found aging in males detracted 1.4% from the headline participation rate. With the end of the crisis coinciding with the single largest segment of the population—the baby boomers—reaching retirement age, men aged 65 or older accounted for the largest drop in the participation rate (Exhibit 2).

However, we were surprised to find that there was actually a sizable drop in the participation rate for males aged 16-64 post-crisis (Exhibit 3). The lower participation among those aged 16-64 detracted 0.8% from the headline participation rate. Overall, aging and the lower participation rate accounted for a total of roughly 2.2% from the headline participation rate.

Exhibit 1: Trend in the labor force participation rate among men 16 years and older (NSA, %).

Source: BLS, Haver. As of 12/31/2018.

Exhibit 2: Males: cumulative aging impact of males on total LFPR

Source: BLS, Havers, and Aegon AM US Macro Strategy. As of 12/31/2018.

Exhibit 3: Males: cumulative changing participation impact on total LFPR

Source: BLS, Havers, and Aegon AM US Macro Strategy. As of 12/31/2018.

Post-crisis trends in the workforce among women

Results for the female population tell a different story. While the LFPR for men steadily decreased since the late 1970s until today, the LFPR for women steadily increased up until the crisis—only to decline slightly following the crisis. Our findings showed that while aging has played a part in reducing the LFPR among women during this time, detracting roughly 1.2% from headline participation, a mild contribution from participation rates limited the entire effect to roughly only 1.15%. Thus, the female participation rate has not significantly influenced the overall participation rate (Exhibit 4).

Our findings point to an interesting subset among the female population keeping the numbers afloat: more women aged 65 and older are remaining in the workforce. This number has actually increased after the crisis for both men (3.1%) and women (3.2%), which offset the modest loss in participation for women in the younger age demographic—aged 16-64 (Exhibit 5). Still, as Exhibit 6 suggests, female boomers aging out of the 16-64 pool drove the entirety of the drop in the overall labor force participation rate post-crisis.

Exhibit 4: Trend in the labor force participation rate among women 16 years and older (NSA, %)

Sources: BLS, Haver. As of 12/31/2018.

Exhibit 5: Females: cumulative aging impact on total LFPR

Source: BLS, Havers, and Aegon AM US Macro Strategy. As of 12/31/2018.

Exhibit 6: Females: cumulative changing participation impact on total LFPR

Source: BLS, Havers, and Aegon AM US Macro Strategy. As of 12/31/2018.

Conclusion

Undoubtedly, the cumulative impact of aging on the participation rate, the slope of which steepened post-crisis, is consistent with baby boomers hitting retirement age around that time. This accounts for a decrease in the LFPR for men and women. While both the male and female labor forces aged 16 and over have negatively influenced the overall participation rate since the onset of the financial crisis, the distribution of impacts hasn't been proportionate. The LFPR for men has seen a steady decline since the late 1970s; however, the LFPR for women steadily increased until the crisis—only to decline slightly following the crisis. Aging and lower participation rates in males detracted from the headline participation rate. For females, aging was the only culprit, with a mild contribution from participation rates from those aged 65 and older remaining in the workforce.

Certainly, a decline in birth rates can help explain an overall lower participation rate for those aged 16 and over. The increase in life expectancy, which requires more retirement income than before may be affecting the amount of baby boomers retiring from the workforce, particularly in women. The results for both men and women also suggest an aging-imposed structural ceiling in the participation rate that would constrain cyclical gains in the labor force, as aging is a trend that is projected to continue.

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