Sunday, May 04, 2014

Participation Rate: Trends and Cohorts

by Calculated Risk on 5/04/2014 12:59:00 PM

A frequent question is: "I've heard the participation rate for older workers is increasing, yet you say one of the reasons the overall participation rate has fallen is because people are retiring. Is this a contradiction?"

Answer: This isn't a contradiction. When we talk about an increasing participation rate for older workers, we are referring to people in a certain age group. As an example, for people in the "60 to 64" age group, the participation rate has increased over the last ten years from 51.1% in April 2004 to 55.7% in April 2014 (see table at bottom for changes in all 5 year age groups over the last 10 years).

However, when we talk about the overall participation rate, we also need to know how many people are in a particular age group at a given time. As an example, currently there is a large cohort that has recently moved into the "60 to 69" age group. To calculate the overall participation rate we need to multiple the participation rate for each age group by the number of people in the age group.

Population by Age Group, 2004 and 2014 Click on graph for larger image.

This graph shows the population in each 5 year age group in April 2004 (blue) and April 2014 (red).  Note: Not Seasonally Adjusted, Source: BLS.

In April 2004, the two largest groups were in the "40 to 44" and "45 to 49" age groups. These people are now the 50 to 59 age group.

In April 2004, there were also a large number of people in the 50 to 59 age group. These people are now 60 to 69.

The following table summarizes what has happened if we follow these two cohorts (40 to 49 in April 2004, and 50 to 59 and April 2004).

Cohort 11Apr-04Apr-14
Participation Rate83.8%74.9%
Labor Force37,29432,535
Cohort 22Apr-04Apr-14
Participation Rate76.1%45.2%
Labor Force26,91515,065
1Cohort 1: People aged 40 to 49 in April 2004.
2Cohort 2: People aged 50 to 59 in April 2004.

So even though the participation rate for an age group is increasing, the participation rate for a cohort decreases as it moves into an older age group.  This shows we need to follow 1) the trend for each age group, and 2) the number of people in each age group.

Note in the table below that the participation rate has been falling sharply for younger age groups (staying in school - a positive for the future) - and that the population is increasing for those age groups.   This is another key trend that has been pushing down the overall participation rate.

This table is population, labor force and participation rate by age group for April 2004 and April 2014.

Populaton and Labor Force by Age Group (000s) NSA
16 to 19 Age GroupPopulation16,19816,652
 Participation Rate40.7%31.1%
 Labor Force6,6005,174
20 to 24 Age GroupPopulation20,17322,107
 Participation Rate74.2%69.2%
 Labor Force14,97015,287
25 to 29 Age GroupPopulation18,88621,151
 Participation Rate81.4%79.8%
 Labor Force15,38316,871
30 to 34 Age GroupPopulation20,02720,877
 Participation Rate83.4%81.4%
 Labor Force16,71217,001
35 to 39 Age GroupPopulation20,59519,332
 Participation Rate83.3%81.9%
 Labor Force17,15115,841
40 to 44 Age Grou[Population22,68320,232
 Participation Rate83.9%82.6%
 Labor Force19,02616,701
45 to 49 Age GroupPopulation21,82520,554
 Participation Rate83.7%81.4%
 Labor Force18,26816,737
50 to 54 Age GroupPopulation19,24722,306
 Participation Rate80.4%78.1%
 Labor Force15,48017,416
55 to 59 Age GroupPopulation16,12621,149
 Participation Rate70.9%71.5%
 Labor Force11,43515,119
60 to 64 Age GroupPopulation12,49918,441
 Participation Rate51.1%55.7%
 Labor Force6,38410,273
65 to 69 Age GroupPopulation9,71614,881
 Participation Rate26.6%32.2%
 Labor Force2,5854,792
70 to 74 Age GroupPopulation8,34910,915
 Participation Rate15.3%19.0%
 Labor Force1,2802,070
75 and olderPopulation16,43418,841
 Participation Rate6.0%8.3%
 Labor Force9861,563
 Participation Rate65.7%62.6%
 Labor Force146,260154,845