Americans in Their Prime Are Flooding Into the Job Market

The core of the American labour force is back.

Americans between 25 and 54 years of age are either employed or looking for jobs at rates not seen in two decades, a trend helping to counter the exodus of older baby boomers from the workforce. Economists define that age range as in their prime working years—when most Americans are done with their formal education, aren’t ready to retire and tend to be most attached to the labor force.

In the first months of the pandemic, nearly four million prime-age workers left the labor market, pushing participation in early 2020 to the lowest level since 1983—before women had become as much of a force in the workplace. Prime-age workers now exceed pre pandemic levels by almost 2.2 million.

That growth is taking a little heat out of the job market and could help the Federal Reserve’s efforts to tamp down inflation by keeping wage growth in check.

Women lead the way

The resurgence of mid career workers is driven by women taking jobs.

The labor-force participation rate for prime-age women was the highest on record, 77.8% in June. That is well up from 73.5% in April 2020.

Men, however, tend to be employed at higher rates. The overall prime-age participation rate rose in June to 83.5%, the highest since 2002.

The big draw: a tight labor market. The unemployment rate has hovered near a half-century low for more than a year, and job openings outnumber the ranks of unemployed. Employers can’t be as choosy or selective, William Rodgers, vice president and director of the Institute for Economic Equity at the St. Louis Fed, said earlier this month.

Employers “are more apt to be willing to work with candidates—in this case it’s working with moms, or parents in general,” he said. “Tight labor markets can help to punish those who discriminate in hiring and compensation.”

Other factors are also at play. Women aren’t having as many children—there were about 3.66 million births in 2022, 655,000 fewer than the peak in 2007—so child-care responsibilities have decreased.

Julia Pollak, chief economist at ZipRecruiter, said it is possible for women’s participation to rise further if employers adopt or the government requires additional family-friendly policies. U.S. female participation lags behind that of other industrialised economies in part because of the cost of child care, which is subsidised elsewhere.

Rising wages lure workers, counter demographic shifts

Employers raised wages, offered employees more flexibility and improved benefits in recent years.

Average wage gains remain elevated this year and have recently surpassed inflation. And Americans are logging more hours of work from home than they did before the pandemic.

Employer recruitment efforts helped offset some broader demographic shifts, including an ageing population and rise in retirements.

The share of the population age 55 and over in the labor force climbed steadily from the mid-1990s through the 2008 financial crisis and remained elevated for more than a decade. The Covid-19 pandemic pushed many out of the workforce, and some older workers haven’t returned, particularly those over 65.

Much of the decline in the overall participation rate was anticipated as baby boomers aged out of the workforce, but the rise in prime-age workers meant the drop wasn’t as steep.

The Congressional Budget Office in January 2020, just before the pandemic hit, forecast the overall participation rate to deteriorate steadily through the 2020s, moving down to 62.4% in the second quarter of this year.

Instead, the rate was a couple of ticks higher in June at 62.6%, supported by prime-age workers.

“It seems like there is almost no cap on the supply of workers, only a speed limit on how fast we can bring them in,” Pollak said, referring to both rising prime-age participation and an influx of immigrants into the workforce.

Trends could turn if the economy cools

There are concerns that the Fed’s campaign to bring down inflation through higher interest rates will cause unemployment to rise too much and push some of the most vulnerable workers back to the sidelines.

The median forecast among Fed officials shows the unemployment rate rising to 4.1% by the end of this year and 4.5% next year from 3.6% in June, suggesting the economy will shed tens of thousands of jobs.

Labor-force participation tends to be cyclical, rising when the economy is strong and falling during downturns. A weaker labor market combined with structural barriers to employment could cap further gains.

With “current strength of labor demand set to fade, further progress from here will probably be more gradual,” Andrew Hunter, deputy chief U.S. economist at Capital Economics, said in a research note.