The size of the US labor force has declined by 2.3 million people between December 2019 and December 2021, which leads us to a discussion about the factors constraining labor supply. Changes in the overall size of the labor force come from changes in labor force participation rates (LFPRs), changes in the demographic makeup of the population, and changes in the size of the population.

Demographic trends have constrained the size of the labor force, including the aging of the population, the decline in fertility rates, and slowing immigration, which reduce labor force growth. The percentage difference between the population aged 20 through 29 and the population aged 60 through 69, called the 20/60 differential, has fallen relatively quickly since 2006, reflecting the aging of the baby boom cohort and the decline in U.S. birth rates. This convergence has contributed to slower growth in the labor force which is expected to continue in the future. Slow labor force growth typically brings with it slower employment growth and increased bargaining power for workers.

If you would like to read more on this topic, click here to read an article from Joel A. Elvery and Isabel Brizuela for the Federal Reserve Bank of Cleveland.