Slower growth in capital services arises from several changes in CBO’s projections. The agency projects larger federal budget deficits in the second and third decades than it did last year, which reduce the funding available for investment and ultimately decrease the growth of capital. In addition, CBO has reduced its projection of labor force growth, reducing the need for investment to provide workers with capital. Finally, the agency now accounts for the effects of slower population growth and fewer new households on private investment in residential housing, resulting in slower growth of residential capital.

CBO’s current projections also include its central estimate—the middle of a range of possible outcomes—of the effect of climate change on economic growth. In the agency’s assessment, that effect slightly decreases growth in real GDP, reducing the level of real GDP by 1.0 percent by 2050, compared with what growth would have been if climate conditions were the same in 2050 as they were at the end of the 20th century. About 0.4 percentage points of that effect was incorporated in CBO’s previous projections, so the agency has adjusted TFP growth in nonfarm business in this year’s projection to reduce the level of real GDP in 2050 by an additional 0.6 percentage points.9

Labor Force Participation and Labor Force Growth

The size of the labor force depends on the rates at which people in different demographic groups participate in the labor market. Since the mid-2000s, the overall labor force participation rate in the United States has declined substantially, predominantly because of the aging of the population.10 CBO expects that decline to continue over the next couple of decades before it levels off toward the end of the 30-year projection period. Because a falling participation rate lessens the effect of population growth on the growth of the labor force, the labor force is expected to grow even more slowly than the population over the projection period, at an average rate of 0.3 percent per year from 2020 to 2050. CBO’s current projections of labor force participation are significantly lower than last year’s for the 2020–2025 period, reflecting the effects of the pandemic and the subsequent recession and recovery. Relative to the agency’s previous projection, CBO projects slightly lower labor force participation, on average, after 2025; slower growth in the labor force over the second and third decades; and a smaller labor force throughout the projection period.