By Jared Bernstein

There are two things to know right now about the employment rate of prime-age workers (the share of people ages 25–54 with jobs). First, it is a commonly-cited indicator of labor market demand, and second, as shown in the figure below, it is in the midst of its strongest recovery on record. The focus is on prime-age workers so as to avoid retirement-age workers, which helps to zero-in more pointedly on labor market trends germane to persons in the heart of their working years. In this edition of the Beat, we dig into this trend, put it in historical context, and examine the roles of labor force participation and unemployment in explaining the increase.

The cool kids refer to the employment-population ratio as the EPOP, re-plotted in the figure below, but this time, with two closely related labor market variables that determine its level and its ups and downs: the labor force participation rate (LFPR) and the unemployment rate. Both EPOPs and LFPRs climbed through around 1990, with significant cyclical ups and downs evident in the unemployment rate. The large labor market disruptions from the pandemic-induced recession stand out clearly towards the end of the chart.

A simple decomposition helps explain the relative contributions of the LFPR and unemployment rate and how have they changed over time. Figure 3 shows the contributions of each variable to the cumulative change in EPOPs of prime-age workers over the full sample.[1]

Figure 3 offers numerous insights about the long-term evolution of EPOPs. First, in terms of their relative contributions, the LFPR is the major contributor to the long-term trajectory of EPOPs; unemployment drives the cycle—the ups and downs in EPOPs as the business cycle waxes and wanes—while the labor force is the major determinant of the EPOPs’ longer-term changes. Second, it was largely the growth in the labor force that boosted employment rates around 1990, after which the LFPR’s contribution stayed relatively constant. As the appendix figures show, this was driven by the 40 percentage-point increase in women’s LFPR through about 1990, as prime-age men’s EPOPs and LFPRs generally fell by about 10 points over the full period covered in the chart.

Turning back to the current period, we see that the prime-age EPOP fell sharply by about 11 percentage points when the pandemic took hold, and it has since recovered about 9 of those percentage points. The table shows the relative roles of LFPR and unemployment over that recovery period (April 2020-November 2021) and compares to periods of the same-length in the prior two EPOP recoveries to uncover any salient differences in the sources of this stronger rebound.

Though much labor market reporting has focused on stagnant LFPRs, for prime-age workers, rising LFPRs contributed about 2 of the 9 points, with falling unemployment picking up the rest. This stands in contrast to the prior two expansions, which, as the first figure shows, started both later and were weaker. At the time, these were initially referred to as “jobless recoveries.” Also note that the LFPR made virtually no contribution in either period. The marginal EPOP gains that occurred were explained by falling unemployment.

In today’s economy, strong consumer demand has led to strong labor demand with high levels of job creation, generating much more of a V-shaped labor-market recovery than we have seen for decades. Labor supply is still constrained by a variety of factors, including COVID concerns and lack of access to affordable care for children and the elderly. However, supply is slowly climbing back, and for prime-aged workers, doing so faster than in the prior two recoveries. CEA will continue to track their developments as labor market recovery continues to evolve.


Prime-age women:

Prime-age men:

[1] See equation 2 from Habijn and Sahin (2021) for the EPOP decomposition used in this post.

Stay Connected

We'll be in touch with the latest information on how President Biden and his administration are working for the American people, as well as ways you can get involved and help our country build back better.

Scroll to Top