Whether workers who have given up looking for jobs will return to the workforce as the economy improves has big implications for inflation and the Fed.
The IMF studied how much of the fall in participation was demographic and how much was workers giving up.
Our study points to aging being responsible for around 50 percent of the decline in participation since the Great Recession, while cyclical forces account for a further 30–40 percent.
The remainder of the post-2007 decline reflects various other forces at work. For example, there has been a significant decline in youth participation. This has been mainly driven not, as some have conjectured, by an increase in college enrollment but, rather, a decline in the number of those students who are also working. In addition, rising applications for disability insurance have played a role.
They say about one third of the decline is reversible in the next two years but by 2017, the aging workforce will put fresh downward pressure on participation.