Missing: About 2 Million Workers From Labor Force, KC Fed Says

An estimated 2 million workers are missing from the U.S. labor force, a new Federal Reserve Bank of Kansas City report found.

Reasons for the drop include the aging of the population in the past two years and a slowdown in population growth, Didem Tuzemen, a senior economist in the Kansas City Fed’s economic research department, said in the report dated May 6.

The participation rate, or the share of the population that is working or looking for a job, was 62.2% in April, and while it has improved from its pandemic levels, it remains one percentage point below levels seen before the COVID-19 outbreak.

But these factors don’t account for all of the “missing” workers despite signs of strong labor demand.

Tuzemen estimated that actual labor force was about 3.6 million smaller in March relative to its pre-pandemic trend. About 1.6 million of the shortfall comprises the aging population and declining population levels, but that leaves a gap of 2 million.

The research found that individuals age 65 and older accounted for about two-thirds of the missing labor force as of March, while prime-age individuals account for almost one-third of the gap. The shortfall among workers aged 55 to 64 is almost entirely gone.

Viewed another way, the labor-force participation rate of older adults is farthest from a full recovery.

The Fed paper noted participation rates have been recovering slowly as reopened schools and day cares have allowed prime-age parents to return to work, and as higher vaccination rates have led to service-sector workers feeling safer about returning to employment. But to completely recover, participation rates among elderly workers would need to normalize.

“Increases in the size of the aggregate labor force in the near term will depend on the pace of recovery in the labor-force participation rates of these older groups and further increases in the prime-age labor-force participation rate,” it said.

Alex Tanzi reports for Bloomberg News.

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