Labor Force Participation Rate at Lowest Level in 35 Years

The Bureau of Labor Statistics (BLS) released August employment numbers on Friday. While the reported unemployment rate dropped to 7.3 percent, the lowest in nearly five years, it fell because more Americans stopped looking for work and were no longer counted as unemployed, as one media outlet reported the story.

Striking too is that the labor force participation rate (LFPR) is at its lowest level in 35 years.

I was interested in the reason. A strongly suggestive reason is found on page 18 of the BLS Employment Situation report. The table on this page compares the LFPR for native-born and foreign-born workers in the U.S. 

In August 2013, the native-born participation rate was 62.8 percent, down from 63.3 percent a year ago.

However, the August 2013 foreign-born participation rate was 66.9%, up from 66.1% a year ago.

I reviewed the monthly LFPR data for 1948 to present from the BLS website, calculated yearly averages and plotted the information. The 2013 year-to-date average is 63.4% :

The year 1978 is highlighted with a vertical red line. As more women entered the workforce after WWII, the LFPR increased, reaching its peak in 2000.

The main reason for the post-2000 LFPR decline, I believe, has been the record numbers of young, foreign-born male workers imported to displace older, native-born male and female workers. With a large influx of young, male imported workers during the past two decades, as a consequence of the immigration liberalizations contained in the Immigration Act of 1990, older native-born workers would see their incomes decline.

Furthermore the income loss would be more significant for women than men. The 2002 American Community Survey (ACS) yielded a detailed tabulation (Table 8) of median and average income as a function of gender, age and educational attainment. This tabulation was also relevant as it disaggregated professional degree holders (M.D., J.D., D.V.M, etc.) from Ph.D. holders. (Professional degree holders tend to have much higher incomes.) Here's the plot for women:

Here is the corresponding plot for men showing higher incomes, but also showing that the decade for peak income remains between 40 and 50 years of age:

If the immigration liberalization contemplated within the voluminous legislation recently passed by the U.S. Senate, S. 744, is enacted, these curves will become even flatter as a consequence of the unprecedented labor gluts that would result. For several reasons, the income and wealth of the economic elites would become even more extreme than it is presently.

Subsequent blog entries will explore these trends in greater detail.