Thursday, December 31, 2020

Question #4 for 2021: Will the overall participation rate increase to pre-pandemic levels (63.4% in February 2020) , or will it will only partially recover in 2021?

by Calculated Risk on 12/31/2020 02:31:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2021. I'm adding some thoughts, and maybe some predictions for each question.

4) Participation Rate: In November 2020, the overall participation rate was at 61.5%, down year-over-year from 63.2% in November 2019.   Long term, the BLS has been projecting the overall participation rate will decline to 61.2% by 2029 due to demographics.  Will the overall participation rate increase to pre-pandemic levels (63.4% in February 2020) , or will it will only partially recover in 2021?

The overall labor force participation rate is the percentage of the working age population (16 + years old) in the labor force.   A large portion of the decline in the participation rate since 2000 was due to demographics and long term trends.

Employment Pop Ratio, participation and unemployment ratesClick on graph for larger image.

The Labor Force Participation Rate in November 2020 was at 61.5% (red), down from the pre-pandemic level of 63.4% in February, and up from the pandemic low of 60.2% in April 2020. (Blue is the employment population ratio).


In April, 8.1 million people had left the labor force due to the pandemic.   By November, about half of these people had returned to the labor force, and there were 4.1 million fewer people in the labor force than at the beginning of the year.

When we look at the age groups that haven't returned to the workforce, a large number are younger (the largest number are in the 25 to 29 age cohort), and mostly prime age workers.   This suggests most of these people will eventually return to the labor force.

In September, the BLS released their updated Labor Force projections through 2029. Their projections show the overall Labor Force Participation Rate (LFPR) declining to 61.2% in 2029.   We need to remember this demographic trend.

My guess, based on the pandemic ending around mid-year, is that most of these people will return to the labor force.   I don't expect that participation rate to increase to pre-pandemic levels (63.4%), but it seems reason the participation rate will increase to the mid-to-high 62s by year end.

Here are the Ten Economic Questions for 2021 and a few predictions:

Question #1 for 2021: How much will the economy grow in 2021?
Question #2 for 2021: Will all the jobs lost in 2020 return in 2021, or will job growth be sluggish?
Question #3 for 2021: What will the unemployment rate be in December 2021?
Question #4 for 2021: Will the overall participation rate increase to pre-pandemic levels (63.4% in February 2020) , or will it will only partially recover in 2021?
Question #5 for 2021: Will the core inflation rate increase in 2021? Will too much inflation be a concern in 2021?
Question #6 for 2021: Will the Fed raise rates in 2021? What about the asset purchase program?
Question #7 for 2021: How much will RI increase in 2021? How about housing starts and new home sales in 2021?
Question #8 for 2021: What will happen with house prices in 2021?
Question #9 for 2021: Will inventory increase as the pandemic subsides, or will inventory decrease further in 2021?
Question #10 for 2021: How much damage did the pandemic do to certain sectors?