Thousands of additional workers could be brought off the sidelines and into the labor force, the Federal Reserve said Friday, potentially bringing the labor market into a state of health it hasn’t enjoyed since the late 1990s.
Even though long-running trends have pushed down on workforce participation in the U.S., ongoing improvement “nevertheless seems possible, especially if labor market conditions remain favorable,” the central bank said in its semiannual monetary report.
Chairman Jerome Powell, who is scheduled to testify on the report next week, has maintained that the economic recovery could extend further by creating jobs for people who today are not actively looking for work. That argument goes against the Fed aggressively tightening monetary policy out of fear of higher inflation.
“I think the economy’s in a really good place,” Powell said Thursday in an interview with Marketplace.
The report noted that several factors have been pushing down labor force participation for a long time — male participation, in particular, has been falling for six decades. One cause is that less-educated workers are having more trouble finding work. Disability and opioid use also may have driven people out of the workforce.
But the report also noted that some people who previously were sidelined by disability have been taking jobs as the unemployment rate has fallen. Also, many of the people out of the official labor force today say they want a job, even though they are not actively looking for one.
Accordingly, the Fed concluded that the recovery, if the government is able to keep it alive, may bring in still more workers.
In fact, it has been doing so in recent years. The labor force participation rate has remained stable at around 63 percent of the population since the fall of 2013, even though it would be expected to fall because of the aging of the baby boomers and the ongoing longer-term trends depressing participation.
Among people between the ages of 25 and 54, the prime “working age” years, participation has risen from as low as 80.5 percent in 2015 to around 82 percent.
That ratio, though, was above 83 percent before the financial crisis and above 84 percent in the late 1990s. Returning to that rate would mean millions more jobs.
