More Workers Than Ever Joined The Workforce Post-Pandemic, But Did The Momentum Peak?

Zinger Key Points
  • More women between the ages of 25 and 54 are part of the workforce than ever before. Men also surpassed recent peaks.
  • Yet the historical trend might be over, with potential consequences for future Fed decisions on interest rates.

The U.S. labor market continues to defy pessimistic views on the American economy.

More workers in their prime age are experiencing peak levels of participation in the labor markets, even reaching a historical record in the case of women, according to a new economic paper published by the San Francisco Fed.

The report comes just one week after a January jobs report exceeded expectations, proving that the labor market holds its resilience in the face of high interest rates. In addition:

  • Some 353,000 jobs were added to the economy, with an average wage increase of 0.6%.
  • Unemployment remained steady at 3.7%.
  • It was the first time since 1967 that the unemployment rate remained below 4% for twenty-four consecutive months. 
  • The U.S. economy grew 3.1% in 2023

A strong economy report is good news for President Joe Biden‘s administration as it ramps up a reelection campaign.

Meanwhile, the market reacted to most recent data on unemployment with a collective assumption that interest rates would remain high, while Fed governors shared optimism from recent data on dropping inflation.

More Adults Are Joining The Labor Market

The "prime-age labor force participation" is a measure used by economists to understand what level of workers between 25 and 54 years old are part of the job market, by either having a job or actively looking for one.

Workers in this age gap represent about two-thirds of the entire U.S. workforce.

Labor force participation dropped extensively during the COVID-19 pandemic, as businesses shut down and economic activity slowed down.

This measure naturally drops during bad times and rises after recession cycles. Yet after the pandemic, its growth surprised economists by surpassing pre-pandemic levels.

The rate of labor force participation for prime-age workers during the pandemic and post-pandemic months (between December 2020 and December 2023) grew about two-and-a-half times faster than the population in that age, as large numbers of people re-joined the labor market.

By early 2023, prime-age labor force participation for women had reached higher levels than in 2019, and continued to increase through 2023, reaching its historical height. For men, the figure had surpassed pre-pandemic levels but remained below the historical record.

Why Are More People Joining The Labor Market?

"One key feature of labor force growth over the past few years has been a surge in the foreign-born labor force," write authors Robert G. Valletta and Deepika Baskar Prabhakar.

The authors found that in recent recovery cycles following recessions, labor force participation for prime-age workers has followed the growth trend of economic recovery. This was not the case before the dot-com recession of the early 2000s.

In recent recovery cycles, "one plausible driver is the larger wage gains for low-wage workers during the two most recent expansions compared with prior expansions," write Valletta and Prabhakar.

In the years after the pandemic, low-wage workers made historic gains in wages, even after adjusting for inflation. Low-wage workers tend to be more responsive to wage changes than their high-income counterparts.

However, according to the analysis made by Valletta and Prabhakar, the rising trend in labor force participation is winding down and may have already ended by late 2023.

Having reached this ceiling could have consequences in upcoming jobs reports throughout 2024, potentially impacting the unemployment rate and interest rate decisions taken by the Fed based on those measures.

Now Read: Biden’s Strategy For Swing States – Support Unions & Striking Workers

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