What Has Driven the Labor Force Participation Gap since February 2020?

Amiti, Mary; Heise, Sebastian; Topa, Giorgio; Wu, Julia

Discussion Paper

What Has Driven the Labor Force Participation Gap since February 2020?

Abstract: The U.S. labor force participation rate (LFPR) currently stands at 62.5 percent, 0.8 percentage point below its level in February 2020. This “participation gap” translates into 2.1 million workers out of the labor force. In this post, we evaluate three potential drivers of the gap: First, population aging from the baby boomers reaching retirement age puts downward pressure on participation. Second, the share of individuals of retirement age that are actually retired has risen since the onset of the COVID-19 pandemic. Finally, long COVID and disability more generally may induce more people to leave the labor force. We find that nearly all of the participation gap can be explained by population aging, which caused a significant rise in the number of retirements. Higher retirement rates compared to pre-COVID have had only a modest effect, while disability has virtually no effect.

Keywords: labor force participation; retirement; disability;

JEL Classification: E2;