Labor force and macroeconomic projections overview and highlights, 2022–32

Changes in the labor force have an outsized effect on economic growth. Slower labor force growth over the last few decades has contributed to slower gross domestic product (GDP) growth. The slowdown in labor force growth has been driven by two demographic trends: lower population growth and an aging of the U.S. population. The labor force grew 0.6 percent annually from 2012 to 2022, much slower than in the 1980s and 1990s, when growth exceeded 1 percent, and in the 1960s and 1970s, when growth exceeded 2 percent.⁴ (See chart 1.) Through 2032, BLS projects the labor force to grow 0.4 percent annually as the aging of the population accelerates.

Several underlying trends are occurring in the labor force. For instance, many people are moving from the 65-to-74 age group into the 75-and-older age group, in which they are highly unlikely to work. Although the participation rate of people ages 75 and older is projected to rise by about 2 percentage points from 2022 to 2032 (from about 8 percent to nearly 10 percent), this increase does not change the expectation that many individuals will retire and exit the labor force. The gap between men’s and women’s participation rates is expected to continue to narrow. This is especially true for prime-working-age (hereafter, prime-age) people (those ages 25 to 54), among whom the women’s participation rate has been increasing while that for men has been decreasing. The recent increase in labor force participation for women ages 25 to 34 coincides with a decreasing fertility rate, which is holding down population growth. The participation rate of young people (those ages 16 to 24) is projected to continue its downward trend.

Decreasing rates of labor force and employment growth will limit GDP growth over the next decade. From 2022 to 2032, GDP is projected to grow 1.9 percent annually, with that growth stemming mostly from annual productivity gains of 1.9 percent over the same period.⁵ (See publication table 4.1 under source data.) Although this productivity growth is faster than that recorded in the past decade, it is in line with growth recorded in the 2000s. (See publication table 4.1 under source data.)

Because the business cycle is unpredictable over a 10-year horizon, BLS projections assume that the unemployment rate in the target year (the final year of the projection period) will be equivalent to the nonaccelerating inflation rate of unemployment (NAIRU) for that year.⁶ In 2022, the unemployment rate was 3.6 percent, below NAIRU, implying that this low of unemployment is unsustainable in the long run. By 2032, the unemployment rate is expected to recover to 4.3 percent, the NAIRU estimate. Slow projected labor force growth and an increase in the unemployment rate are expected to result in employment growth of 0.3 percent annually over the 2022–32 decade.

Methodology

The labor force projections serve as an input to the aggregate economy model. These projections consist of three components: population, labor force participation rates, and the resulting labor force. Each component is modeled at the detailed level by age, sex, and race or ethnicity. The resulting detailed levels can then be aggregated to larger categories (e.g., by race or sex) and, ultimately, to the total.

The projections for labor force participation rates are modeled by using historical trends.⁷ Population projections are derived from 2017 U.S. Census Bureau population projections, the most recent available. However, Census projections are for the resident population, whereas BLS publishes estimates for the civilian noninstitutional population.⁸ BLS benchmarks Census resident population projections to the most recent (2022) annual population estimates available from the Current Population Survey (CPS). Labor force projections are obtained by multiplying each detailed demographic group’s population by its participation rate.

Once labor force projections are developed, they are supplied to the aggregate economy (macroeconomic) model. BLS develops macroeconomic projections with a model licensed from Macroeconomic Advisers (MA) by IHS Markit.⁹ The MA model assumes full employment in the target year, 2032. Data for energy prices come from the U.S. Energy Information Administration, and BLS determines other critical variables—most notably the labor force—and supplies them to the MA model exogenously.¹⁰ The MA model then projects economic aggregates, including total employment, output, productivity, prices, interest rates, and many other variables for the U.S. economy. These variables—most importantly nonfarm payroll employment, labor productivity, and GDP—serve as constraints for the industry output and employment projections.

Overview of labor force projections

The impacts of lower population growth and an aging labor force are projected to accelerate over the coming decade. BLS projects that the annual rate of labor force growth will decelerate to 0.4 percent over the projection period, down from 0.6 percent in the preceding decade. This deceleration equates to a labor force of 170.7 million in 2032, up from 164.3 million in 2022. Population growth also slowed over the last few decades, although not as steeply as labor force growth. In the previous decade, population growth slowed to 0.8 percent annually, compared with just above 1 percent in the 1980s, 1990s, and 2000s. (See chart 1.) BLS projects slightly slower population growth over the upcoming decade, at 0.7 percent annually. These lower rates of population growth primarily result from fertility rates rarely breaking above the replacement rate of 2.1 births per woman since the early 1970s. Slowing immigration also plays a role in the slowdown.

Although the rate of labor force growth is now lower than that of population growth, this has not always been the case. During the 1960s, 1970s, and 1980s, the labor force was growing faster than the population, with the bulk of those gains being driven by baby boomers moving into the prime-age segment of the population and with women’s participation rates rapidly increasing. Conversely, in more recent decades, labor force growth has been slowing more steeply than population growth, a change due to baby boomers entering retirement age. By 2032, all baby boomers will be ages 68 and older; thus, most population gains will be in older age groups.

This aging of the population is associated with a declining labor force participation rate. The overall participation rate has been trending down since 2000 and is projected to continue to do so. The participation rate declined from 67.0 percent in 2000 to 62.2 percent in 2022, for an average annual decline of 0.3 percent. The rate is projected to decline further over the next decade, to 60.4 percent in 2032, for an average annual decline of 0.3 percent. (See chart 2.)

Although the overall participation rate has declined, the rates of some demographic groups have increased. BLS develops detailed demographic projections for 14 age groups (by sex, race, and ethnicity) for participation rates, the labor force, and the population. Changes in key demographic trends drive changes in the labor force outlook. This article focuses on some of the more noteworthy trends and their influence on the overall participation rate, population, and labor force.

Fertility-rate influence on the population and the labor force

Lower fertility rates since the 1970s act as a drag on population growth—and, therefore, labor force growth—over the projection period. The fertility rate—the total number of children born to each woman—is the primary driver of population and labor force growth. (Because the labor force is a subset of the population, it is constrained by population growth.) Additionally, the age at which a mother gives birth plays a role in population growth, particularly over shorter timespans. Over the past few decades, a shift has occurred whereby women are having children later in life.¹¹ Moreover, in a given year, the “base,” or the level of women at reproductive age (roughly 15 to 44), can also be a factor in population growth. Because fertility rates have been relatively consistent over time, staying below the replacement level of 2.1 births per woman since the early 1970s, the base has been growing relatively consistently as well. (See chart 3.) An exception to this consistency is a carryover from the baby boom, commonly referred to as the “echo boom.” Although the fertility rate was not especially high in the 1980s and early 1990s, the base was high as a result of the post-World War II baby boom. As a result, births increased despite a lackluster fertility rate over much of this period.¹²

The youngest age covered in BLS labor force and population measures is 16.¹³ Therefore, fertility rates will have no impacts on the population and the labor force for 16 years. Chart 3 plots historical fertility rates over time and can be useful in considering how these rates affect the various age groups. The youngest age group is affected by fertility rates 16 to 19 years after they occurred, and the oldest age group is affected by fertility rates 75-plus years after they occurred. Relative to the target year of 2032, these rates occurred in, respectively, 2013–17 and 1957 and prior. Although the fertility rate is not the only factor affecting population growth, seeing its changes associated with different age groups in 2032 can be informative.

One of the few age groups with negative projected labor force growth is that of people ages 20 to 24. (See publication table 3.2 under source data.) This group has been influenced by a declining fertility rate (see the rate’s decline between 2008 and 2013 in chart 3) and by women putting off having children until later in life.¹⁴ A declining population, along with other factors at play (detailed later in the article, in the section on youth’s participation rates), is another reason for this group’s projected labor force decline.

In 2032, all baby boomers will be in the 65-to-74 and 75-and-older age groups. People in these age groups were born prior to 1968, when the fertility rate was mostly above 3 births per woman, and are projected to have the fastest population and labor force growth over the next decade. In the proceeding years after the baby boomers were born, the fertility rate fell substantially (to 1.7 births per woman in the mid-1970s), at a time when those ages 55 to 64 were born. This latter group is one of the few with projected population and labor force declines, and these declines (0.8 and 0.4 percent, respectively) are consistent with the falling fertility rate in the 1970s.

The trend for baby boomers and the projected declines for the 55-to-64 age group are mirrored, albeit to a lesser degree, a generation later, among those born in the wake of the echo boom. The echo boomers are those born between 1982 and 1995.¹⁵ These individuals will be in the 35-to-44 and 45-to-54 age groups in 2032. The population of the 25-to-34 age group that has been vacated by echo boomers is projected to decline 0.1 percent annually over the next decade.

Baby boomers, aging, and changes in the population mix

High fertility rates resulted in 76 million births during the baby-boom years of 1946 through 1964. In contrast, Generation X (those born between 1965 and 1980) recorded only 55 million births, and millennials (those born between 1981 and 1996) recorded 62 million.¹⁶ The large number of baby boomers and their tendency to work later into life have played pivotal roles in labor force trends and, therefore, economic growth.

Most baby boomers entered the 65-to-74 age group during the 2012–22 decade. Over this period, this age group grew the fastest, 3.7 percent annually, much faster than the overall population, which grew 0.8 percent annually. (See chart 4.) In 2032, baby boomers will be between 68 and 86 years old. Many of them will move out of the 65-to-74 age group and into the 75-and-older age group, which will result in rapid growth, 3.9 percent annually, of the 75-and-older population. As baby boomers move out of the 55-to-64 age group over the next decade, the population of this group is projected to decrease much faster than that of any other age group, at an annual rate of 0.8 percent.

The 65-and-older age group is expected to account for more than three-fourths of the overall projected population growth from 2022 to 2032.¹⁷ This development will affect labor force participation rates. The overall participation rate is a weighted average of the participation rates of all individual age groups. The older age groups have lower participation rates than the prime-age group. (See publication table 3.3 under source data.) The participation rate of the 75-and-older age group, 8.2 percent, is considerably lower than the 82.4-percent rate of the prime-age group. As the 65-to-74 and 75-and-older age groups grow faster than the rest of the population, their lower participation rates are weighted more heavily in the overall participation rate. The result has been a declining overall participation rate since 2000, as many baby boomers have retired. (See chart 2.)

This dynamic also affects the 55-and-older age group. As the 65-to-74 and 75-and-older age groups grow and the 55-to-64 age group shrinks, the oldest groups are weighted more heavily in the participation rate of the 55-and-older age group. The result is somewhat counterintuitive because the participation rate of people ages 55 and older is projected to decline by 1.4 percent annually, although the rates of all three age subgroups within that group are projected to increase. This result occurs for a combination of reasons, including a declining population of people ages 55 to 64 and substantial growth (more than 10 million) of the 75-and-older population. The 55-to-64 age group is projected to have a participation rate of nearly 70 percent in 2032, whereas the 75-and-older age group is expected to have a rate closer to 10 percent in that year. (See table 1.)

Working later into life

A trend offsetting some of the baby boomers’ downward pressure on labor force growth is their propensity to work later into life. The primary reasons for this group’s increasing participation rate are Social Security reforms and employers moving away from defined benefit pension plans.¹⁸ Surveys indicate that most older workers who continue to work do so out of financial necessity.¹⁹ Additionally, there has been a shift in the economy to less physically demanding jobs. Workers in these jobs are generally able to work longer than their counterparts in more physically demanding jobs.²⁰

Despite dipping in 2020 and 2021 because of the COVID-19 pandemic, the participation rates of all older age groups (those 55 and older) have been trending up over the past few decades and are projected to continue to do so. (See charts 5 through 7.) Although the rates of the 55-to-64 and 65-to-74 age groups have not yet returned to their prepandemic levels, they did increase in 2022, suggesting a return to the prepandemic upward trend.

Over the past 30 years, the participation rates of the 55-to-64 and 65-to-74 age groups have increased by 8.9 and 10.3 percentage points, respectively. Although the rate of people ages 75 and older has risen as well, it is up by only 3.8 percentage points. Over the projection period, the participation rate of the 55-to-64 age group is projected to grow from 65.2 to 68.4 percent, and the rate of the 65-to-74 age group is projected to grow from 26.6 to 29.9 percent. The participation rate of the 75-and-older age group is projected to grow to 9.9 percent in 2032; people in this group will be twice as likely to work as they were 40 years earlier (in 1992).

Diverging participation rates of prime-age men and women

Although population aging drives most of the decline in the overall participation rate, it is not the only driver. Some demographic groups’ participation rates have been trending down. The rate of prime-age men has experienced one of the more notable declines. For prime-age women, the participation rate has been more dynamic, decreasing throughout the 2000s and early 2010s and then increasing to present.

After declining slightly throughout the 1970s and 1980s, the men’s participation rate declined more sharply from the 1990s onward. This trend could be due to a substantial decline in middle-skill jobs. This decline has resulted from technological advancements automating away “routine” occupations and from offshoring jobs to other countries where wages are lower.²¹ The participation rates of men in prime-age groups are expected to continue edging down. Over the projection period, the participation rate of men ages 25 to 34 is projected to decline from 88.7 to 86.2 percent, while the rates of men in the 35-to-44 and 45-to-54 age groups are projected to decline from 89.7 to 88.0 percent and from 87.1 to 85.6 percent, respectively. (See chart 8.)

The participation rates of women in prime-age groups were peaking around the turn of the 20th century. Although these rates declined similarly to those of men for a decade and a half, they have been trending up since around 2015. (See chart 9.) Having children reduces women’s participation rate, an effect that is strongest when women are younger.²² Therefore, reduced fertility rates may partly explain why the participation rate of women ages 25 to 34 posted the most substantial gains among prime-age women since the 2015 lows. (See chart 3.)

Additionally, a trend affecting women of all ages is the growth of employment in certain female-dominated service sectors of the economy, such as healthcare and education.²³ Projections are somewhat mixed for different prime-age groups of women as their participation-rate increases over the past 5–7 years are weighed against the longer duration decline since 2000. From 2022 to 2032, the participation rate of women ages 25 to 34 is projected to increase from 77.6 to 78.2 percent, the rate of women ages 35 to 44 is projected to decrease from 76.3 to 75.7 percent, and the rate of women ages 45 to 54 is projected to increase from 75.2 to 76.3 percent. Although the participation rates of prime-age men have declined in recent decades and are projected to continue to do so, they are still expected to remain higher than those of prime-age women. However, the gap between men’s and women’s participation rates in prime-age groups is expected to shrink.

Youth’s declining participation rate

The 20-to-24 age group shows different trends in participation rates by sex. This group’s labor force participation has been affected by increased higher education and delayed entry into the labor force. College enrollment peaked in 2010.²⁴ Although it declined slightly through 2020, it has remained high, at 19.0 million, relative to its levels in the 1970s, 1980s, and 1990s.²⁵ Men’s college enrollment fell about 8 percent between 2010 and 2020, compared with about 3 percent for women.

The participation rate of women ages 20 to 24 grew steadily throughout the second half of the 20th century, peaking at 73.2 percent in 1999. Since then, the rate has declined, hitting a low of 67.4 percent in 2012 before rebounding slightly. This trend is consistent with higher education trends over this period, suggesting that women delay entry into the labor force as they attend college. The peak in female college enrollment occurred 2 years before the participation rate hit its 2012 low. The rate then rose slightly as enrollment fell between 2010 and 2022. BLS projects the participation rate of women ages 20 to 24 to continue to edge down, from 68.7 percent in 2022 to 67.3 percent in 2032. (See chart 10.)

The participation rate of men ages 20 to 24 has declined more dramatically than that of women in this age group, despite college enrollment falling more sharply for men. Hovering around 85 percent throughout the 1970s and 1980s, the men’s participation rate declined slightly throughout the 1990s, rapidly throughout the 2000s, and again more slowly in the 2010s. (See chart 10.) After falling from 82.6 percent in 2000 to 74.5 percent in 2010, the rate declined more slowly. In 2022, it stood at 73.2 percent, only slightly lower than its 2010 level.

The participation rates of men and women ages 20 to 24 have been converging as the men’s participation rate continued to decline from 2010 to 2022. This declining trend also occurred among prime-age men, suggesting that many of the structural factors affecting prime-age men are also likely affecting men ages 20 to 24. These factors, detailed earlier in the article, can be summarized as automation and globalization. BLS projects the participation rate of men ages 20 to 24 to decline from 73.2 percent in 2022 to 68.2 percent in 2032.

Immigration

BLS population projections are derived from 2017 Census projections that include estimates of immigration flows.²⁶ Although the impacts of fertility rates on 10-year projections are known (because births have already been counted), those of immigration are tentative because immigration is highly uncertain over the long term. Policy decisions and economic conditions in both sending and receiving countries can have abrupt impacts on net migration. For example, the COVID-19 pandemic and the emergency policies adopted in response to it abruptly slashed immigration. U.S net immigration exceeded 1 million annually between 2014 and 2017. Immigration trended down before the onset of the pandemic and then fell considerably in 2020 and 2021. In 2021, immigration was 376,000, less than a third of its 2017 total. Immigration rebounded in 2022, with Census estimating slightly over 1 million immigrants in that year.²⁷ It remains to be seen whether this rebound will begin a new trend similar to that of 2014–17 or whether the 2022 level was high because of an influx of a large number of immigrants who would otherwise have immigrated in 2021.

Labor force composition by race and ethnicity

BLS projections include data for three racial categories: White, Black, and “all other groups.”²⁸ The latter category consists of individuals of multiple racial origins, including Asians, American Indians and Alaska Natives, and Native Hawaiians and Other Pacific Islanders. Projections are available for population and labor force growth. For all races, labor force and population trends are similar.

The labor force for the “all other groups” category grew faster than that for Whites and Blacks over the last few decades and is projected to continue to do so. Growth in the Black labor force has been moderate and is projected to continue, while that for Whites has lagged behind.

BLS projects that, from 2022 to 2032, the “all other groups” labor force will grow 2.1 percent annually, the Black labor force will grow 0.7 percent annually, and the White labor force will grow 0.1 percent annually. By the end of the projection period, the percentage of Whites in the overall labor force is expected to drop below 75 percent, to 74.3 percent. In 2032, Blacks are projected to account for 13.4 percent of the overall labor force, with the “all other groups” category accounting for the remaining 12.3 percent. (See chart 11.)

Besides projecting data by race, BLS projects data by ethnicity. Ethnicity, which is independent of race, is split between Hispanic and non-Hispanic categories. People of Hispanic ethnicity can be of any race. Over the last few decades, the Hispanic labor force has been growing faster than the non-Hispanic labor force, a trend that is projected to continue. From 2022 to 2032, the Hispanic labor force is projected to grow 2.0 percent annually, whereas the non-Hispanic labor force is projected to see no growth. (See publication table 3.1 under source data.) As a result, Hispanics are expected to make up 21.9 percent of the overall labor force in 2032, up from 18.6 percent in 2022. (See chart 12.)

Overview of macroeconomic and aggregate economy projections

The slow labor force growth projected for the 2022–32 decade will act as a drag on the economy. Although recent years have seen faster economic growth because of the recovery from the 2020 pandemic recession, the economy appears to be at full employment.²⁹ Therefore, future growth will stem from labor force and productivity growth. BLS projects that output, expressed as GDP, will grow 1.9 percent annually over the next decade. This growth is in line with that recorded in the 2000s and 2010s, although it is low relative to growth in the 1980s and 1990s, when the labor force was growing notably faster.³⁰ (See chart 13.)

GDP consists of personal consumption expenditures (PCE), investment, government expenditures, and net exports. PCE, while tending to contract during recessions, typically accounts for the majority of GDP growth, with the next highest contribution coming from investment. Over the 2022–32 decade, BLS projects PCE to contribute 1.4 percentage points annually to GDP growth, and investment to contribute 0.3 percentage point. (See chart 14.)

Net exports and government expenditures do not account for much of GDP growth in ordinary times, although government expenditures can contribute heavily to growth during recessions (as the government spends more to stimulate the economy). Collectively, over the next 10 years, these two components of output are projected to contribute 0.2 percentage point annually to GDP growth, with each component contributing 0.1 percentage point.

Nonaccelerating inflation rate of unemployment

The labor force includes both the employed and the unemployed. Unemployment typically increases during recessions, whereas employment increases during expansions. Recessions and expansions are parts of the business cycle. Growth rates for upcoming years depend on where in the business cycle the economy is at present. The bottom of a recession is referred to as a “trough,” and the top of an expansion is referred to as a “peak.”

When the economy is at or close to a peak, it is said to be at full employment.³¹ Because BLS projections assume full employment in the target year, when the economy is already at or close to a peak, its potential growth is constrained by labor force growth.

A peak is associated with the unemployment rate being at, or even below, NAIRU. The current unemployment rate is below NAIRU (see chart 15), suggesting that the economy is at full employment and the employment (and output) growth rate is constrained accordingly.

BLS uses the CBO estimate of the noncyclical unemployment rate to estimate NAIRU.³² This value is estimated to be 4.3 percent in 2032. Because the 3.6-percent unemployment rate in 2022 is below the 2032 estimate, there is less room for employment to grow. The unemployment rate is projected to reach the NAIRU value of 4.3 percent by 2032. Consequently, employment is expected to grow by a meager 0.3 percent annually over the next decade. The fact that employment is projected to grow simultaneously with unemployment is attributable to increases in the labor force.

Employment

There are various employment concepts. The two most common are household employment and establishment (or payroll) employment. The names of these concepts are based on how the concepts are measured. Household employment, used by the CPS at BLS, is estimated by directly asking households about how many individuals in them are working. Payroll employment, used by the Current Employment Statistics survey at BLS, is estimated by asking employers how many employees are on their payrolls. Estimates from these two surveys are not expected to match because a single individual with multiple employers will be counted twice in the establishment survey but only once in the household survey. Additionally, the two estimates are based on distinct survey and estimation methods.³³

Household and payroll employment are both projected to grow 0.3 percent annually over the next decade. (See publication table 4.1 under source data.) This slow rate is due to the low (although slightly higher, at 0.4 percent) rate of labor force growth, as well as the projected rise in the unemployment rate back to NAIRU. (See chart 15.)

Productivity

Employment and productivity growth drive output. Productivity is influenced by capital deepening and total factor productivity (TFP).³⁴ Capital consists of durable goods that, after being produced, are used as inputs to further production.³⁵ These inputs include computers, equipment, intellectual property, buildings, and the like. Capital deepening refers to an increase in the ratio of capital to labor. Greater investment increases this ratio, although capital naturally depreciates over time. TFP can increase because of technological improvements, increases in the education or quality of the workforce, improvements in management practices, and economies of scale.

From 2012 to 2022, productivity grew 1.2 percent annually, more slowly than in prior decades, when growth surpassed 2 percent annually. (See chart 16.) Over the 2022–32 period, BLS projects productivity growth to be 1.9 percent annually, similar to, although slightly slower than, growth recorded before 2012. Historically, capital deepening has been responsible for slightly more than half of productivity growth, and this dynamic is projected to continue over the next decade. Capital deepening will account for 1.1 percentage points of productivity growth, while TFP will account for 1.0 percentage point. (Cyclicality also plays a role in productivity growth, so the sum of these components does not equal overall productivity growth.)

Monetary policy and inflation

Since March 2022, monetary policy has changed significantly in response to inflation, with the Federal Reserve (hereafter, the Fed) raising the federal funds rate (the rate underpinning most loans made in the United States) to levels not seen since 2007.³⁶ Depending on how it is measured, inflation increased between 6.2 and 8.0 percent in 2022.³⁷ This range is substantially higher than the Fed’s target inflation rate of 2.0 percent, indicating that the economy is above full employment. Consequently, the Fed increased the federal funds rate from a range of 0.00–0.25 percent in January 2022 to a range of 5.00–5.25 percent in May 2023.

At the time of this publication, inflation has subsided. BLS projects inflation to decrease notably over the next 10 years, down to levels consistent with the Fed’s target inflation rate and with rates recorded in much of the past decade. The Consumer Price Index is projected to increase 2.2 percent annually, and the GDP price index is projected to increase 2.3 percent annually. (See publication table 4.4 under source data.) BLS expects the Fed to lower its federal funds rate to 2.8 percent in 2032.

Conclusion

Over the next decade, demographic changes are expected to reverberate throughout the U.S. economy and affect GDP growth.³⁸ The aging of the baby-boom generation has already lowered the overall labor force participation rate, a trend that is projected to continue as many baby boomers enter the 75-and-older age group by 2032. Lower fertility rates will reduce population and labor force growth throughout the projection span. Over the past two decades, these trends have contributed to lower GDP growth relative to growth seen in much of the 20th century. As the trends continue into 2032, GDP is projected to grow at an annual rate of 1.9 percent, similar to growth rates in the 2000s and 2010s.