WASHINGTON (MNI) – The following text is the summary of the U.S.
Congressional Budget Office’s labor force projections through 2021
released Tuesday:

Each year CBO examines many developments that could have short- or
longer-term consequences for the budget and the economy. During the
decades to come, one such development is expected to be a slower rate of
growth of the labor force relative to the average growth rate of the
past few decades. That slowdown is anticipated to occur primarily
because of the aging and retirement of large numbers of baby boomers and
because women’s participation in the labor force has leveled off since
the late 1990s after having risen substantially throughout the three
decades before that. A background paper released today describes the
methods CBO uses to project such trends through 2021.

The labor force has increased by about 0.8 percent per year, on
average, over the past decade. That rate of growth is less than the
annual rate of 1.2 percent in the 1990s and much lower than the 2.1
percent rate exhibited over the three decades before that (see figure
below). Although the U.S. population has grown by about 1.1 percent per
year over the past 10 years, the labor force participation rate (the
percentage of the civilian noninstitutional population age 16 years or
older who are either working or actively seeking work) has declined,
reversing a long-term upward trend.

CBO anticipates that during the next decade the U.S. labor force
will grow at about the same rate, on average, as it did during the past
decade. The labor force is projected to increase from 153.9 million
people in 2010 to 168.7 million in 2021. The aggregate rate of
participation in the labor force is projected to fall from 64.7 percent
in 2010 to 63.0 percent in 2021.

CBO’s projections combine analysis of demographic and labor market
trends:

Population projections.

CBO develops projections for specific groups in the adult civilian
noninstitutional population, categorized by age and sex, by applying
growth rates developed by the Social Security Administration (SSA) to
population estimates for 2010. Those projections are adjusted for
differences between CBO’s projections for net immigration and those
incorporated in SSA’s population projections. On that basis, CBO
estimates that the civilian noninstitutional population age 16 or older
will reach 267.6 million in 2021, up from 237.8 million in 2010.

Labor force projections.

CBO projects the overall participation rate by combining its
projections for various demographic groups weighted by their share of
the population. That rate is adjusted to account for the effects of
changes in marginal tax rates that are scheduled under current law and
is then applied to population projections to estimate the potential size
of the labor force if the economy were at full employment. Further
adjustments for the effects of short-run economic fluctuations (or
business cycles) are made to project the actual participation rate and
the size of the labor force. CBO projects that the labor force will grow
by about 15 million people (or about 10 percent) over the next decade.
Because of a decline in the rate of labor force participation, however,
growth in the labor force is expected to be less than the increase in
the population, which is expected to grow by 12.5 percent during the
next 10 years.

Two factors are especially important to the current projections of
participation in the labor force. The first is near-term economic
conditions. Because of the weakened state of the economy, the labor
force is currently well below its potential size; consequently, CBO
expects it to grow faster than its long-term trend between now and 2016.
By that time, CBO projects, the output gap will have closed (that is,
the economy will be operating at its full potential), and the actual
labor force will be about equal to the potential labor force.

After 2016, CBO expects the growth of the labor force to equal, on
average, the growth of the potential labor force, and it does not
attempt to forecast the timing of subsequent business cycles. The second
factor is the impending retirement of the baby-boom generation (people
who were born between 1946 and 1964), which will cause the potential
labor force participation rate to decline throughout the next decade. In
CBO’s estimates, the effect of the second factor outweighs the first,
pushing down the labor force participation rate, on balance, over the
next decade.

** Market News International Washington Bureau: 202-371-2121 **

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