The Incredible Shrinking Labor Force

The U.S. population is growing at an average rate of a little more than 1% per year. It is reasonable to expect that the labor force should also be growing. However, the civilian labor force has declined on year-to-year basis three different times in 2009. See the following graph.

Civilian Labor Force

The year-over-year change in the labor force was negative in January, July and August 2009. This is the first time this has occurred since the 1950s and early 1960s. In those years, Korean War and pre-Vietnam War military needs were producing high draft levels, which had a negative impact on the civilian labor force until the number of women in the labor force started to increase more rapidly.

Declining Labor Force Growth

There is a well-defined downtrend in the growth of the labor force starting about 1970. It may not be obvious when first looking at the noisy data of the graph above, but when the same data are smoothed using 12-month moving averages combined with trend lines, the declining labor force growth rate is very evident. See the following graph.

Labor Force and Population Changes

Both the linear and the curved (quadratic) trend lines have similar R-squared values (0.61-0.65), indicating that each is equally well correlated to the data. However, the linear trend line would reach zero in about eleven more years. That is only reasonable if there is near-zero growth in the economy between now and 2020, so a curved trend line is probably a better representation of what to expect. However, if economic growth is less than we have come to expect based on the past 20-30 years, the curve may not flatten out a much as shown in this graph. It is possible that, under unfavorable economic conditions, the growth in the labor force could remain below the growth rate of the population for significant periods of time.