Structural changes in the United States are plainly at work; based in part on slower-moving demographic factors.
A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of Baby Boomers.
Baby Boomers can't be the whole story, though, since the participation rate has declined for younger workers too. This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance. Globalization and technological change have also reduced employment and wage growth for low-skilled workers--which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.
To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense. Different narratives of today's labor market point to different possible solutions.
Source: The Wall Street Journal, April 5, 2014