Labor force participation falls to 61.5%, the lowest in 50 years outside COVID, and economists say it’s not just people giving up

Summary

Economists have spent the past week arguing about why 720,000 people walked away from the labor force in a single month. There are two reasons why you might not add jobs in a month: One is there’s no demand for workers, the other is there is demand, but there’s not enough supply.” Ullrich co-authored a May report from Indeed Hiring Lab , “The Great Mismatch: How a Shrinking Workforce, AI, and Labor Reallocation Will Define the Next 15 Years,” projecting the labor force would begin shrinking in 2026. The finding was particularly driven by a combination of immigration policy changes and what Ullrich calls “the demographic cliff”—the accelerating retirement of the baby boomer generation. The report estimates the labor force will decline by roughly 3.7%, or 5.9 million workers, between 2025 and 2032, before partially recovering. Around the same time, then-Fed Chair Jerome Powell told reporters the economy was seeing “very, very low, nonexistent, really” growth in the labor force. “I was like, okay, I think we are here with the demographic changes and the share of baby boomers that are leaving the workforce.” The Bureau of Labor Statistics’ own 10-year projections already point to declining participation, Ullrich said, and those projections predate the current immigration restrictions. “I think when their estimates come out this next year, they’ll be even more severe declines, because immigrant workers are both younger than native-born workers, but also have higher labor force participation rates.” Ullrich also pointed to BLS data comparing labor force participation between foreign-born and native-born workers, showing foreign-born individuals have a participation rate of 66.3%, compared with 61.6% for native-born workers. But the pattern flips among women: Native-born women have higher participation rates than immigrant women, particularly immigrant women with young children, who are less likely to work than their native-born counterparts. Age compounds the effect: Roughly 70.1% of foreign-born individuals are between 25 and 54, considered the “prime-age” years, as compared with 62.7% of native-born Americans. “If immigration declines, you have two impacts that are related: Immigrant workers tend to be younger than native-born workers, so by definition you get an older workforce, and labor force participation rates, even within the same age groups, are higher, especially for foreign-born men,” Ullrich said. AI is accelerating a mismatch in which the available workers aren’t lining up with where the job openings are. Low-wage, high-demand fields like home health aide work face the starkest supply gap of all, Ullrich said, as demand rises with an aging population but pay hasn’t kept pace: “It’s a mismatch problem. That’s an indirect impact of AI.” Indeed modeled the labor force through 2040 under two scenarios: one in which AI destroys a significant number of jobs, and one in which it augments human labor and creates new ones. “No matter what we did with AI in our model, demographics were the bigger story,” Ullrich said.