Projections of Labor Force Participation. In CBO’s projections, the rate of labor force participation falls from 63.1 percent in 2019 to 61.8 percent in 2020, reflecting the effects of the pandemic and economic crisis. The labor force participation rate continues to decline to 60.7 percent in 2030 and to 59.9 percent in 2040, primarily because of the aging of the population. After 2040, as demographic shifts slow, the participation rate also gradually stabilizes, averaging 59.6 percent in the third decade of the projection period.

The heightened health risks from the pandemic and the social-distancing measures taken to slow the spread of disease precipitated a sudden drop in economic activity and caused the labor force participation rate to fall by more than 3 percentage points in March and April this year—an unprecedented decline since the current system of monthly data collection began in 1948. The labor force participation rate has since rebounded, but only partially. The decline in the rate of labor force participation is partly the result of some people leaving the labor force or postponing job searches because of factors such as illness, health risks, and school closures. CBO projects that those factors will diminish in the remainder of 2020. As a result, the agency expects the overall labor force participation rate to continue to recover throughout the rest of the year. But that recovery is projected to stall after 2020 as downward pressure from the aging population offsets upward momentum from the economic recovery. In particular, CBO projects the labor force participation rate to decline after 2021, even as the gap from its potential continues to diminish.

In CBO’s projections, the aging of the population accounts for most of the decline in the overall labor force participation rate over the next 30 years. People age 65 or older tend to participate in the labor force at lower rates than younger people—in 2019, the average participation rate for people ages 25 to 54 was 82.5 percent, and the rate for people age 65 or older was about 20 percent. Among the civilian noninstitutionalized population age 16 or older, the share of people age 65 or older increased from 16.3 percent in 2010 to 20.9 percent in 2020, and is projected to rise to 27.3 percent by 2050. At the same time, the share of the population ages 25 to 54 is expected to decline from 48.4 percent of the total population in 2020 to 44.5 percent by 2050. Were it not for the aging of the population, the overall rate of labor force participation over the coming decades would be higher and more stable than currently projected, in CBO’s assessment.