The U.S. labor market bounced back last month with healthy job growth and a decline in unemployment. But another trend also came into focus: the continuing fall in labor-force participation.
The share of the working-age population that is either working or looking for work—known as the labor-force participation rate—edged down to 61.9% in March, its lowest level since 1977, outside of the pandemic.
The rate has been gradually falling since the early 2000s, largely due to the aging population. It nosedived in the early months of the pandemic, then rebounded and grew for a while before resuming its downward slide in 2024.
The continued aging of the population and the Trump administration’s immigration crackdown have helped drive the fall in recent months, economists said.
The rate matters because it helps set the pace of economic growth. The economy grows either because more workers join it or because each worker produces more.
“A lower labor force participation rate means slower long-run economic growth,” said Gus Faucher, chief economist at PNC Financial Services Group.
Fortunately, U.S. productivity growth has been above historical averages for the past several years, said Greg Daco, chief economist at EY-Parthenon. “That has essentially partially offset the slowdown in the growth of the labor force,” he said. “But there’s an open question as to how much more productivity growth we’ll get in the coming years,” he added.
The participation rate has been under pressure since the huge postwar generation known as baby boomers started retiring in the early 2000s, a trend that has continued in recent months as younger boomers reach retirement age.
Early retirement among workers 55 and older has been another factor. The pandemic prompted many in this demographic to leave the workforce before 65, and the trend has continued as some opt to sit out the tumult of artificial intelligence. The labor-force participation rate for Americans 55 and over has fallen from 40.2.% in January 2020 to 37.2% last month, the lowest level in more than 20 years.
Some in this group may have been inspired to retire early because they had built a lot of equity in their homes and 401(k)s, Daco said. Others might have had a hard time finding a job after losing one and eventually just left the workforce, he said.
The Trump administration’s immigration policies have been another drag on the participation rate. Lower levels of immigration, along with deportations, have cut off a pipeline of often young residents who come to the country specifically to work.
“With immigration declining and fewer people entering, we have aged our workforce in a more rapid way,” said Laura Ullrich, an economist at the job-search site Indeed.
Over time, a lower participation rate could spell more trouble for the U.S. economy “because we are also at some point going to be experiencing declines in population,” Ullrich said. A smaller pool of potential workers, combined with lower participation rates within that pool, could lead to labor shortages in some areas, she said.
On a positive note, the participation rate of people ages 25 to 54, known as “prime-age” workers, has held near multidecade highs—evidence that the overall decline in participation is tied more to the aging population and the immigration shock than to people struggling to find work and giving up, economists say.
“The bigger issue is about aging. It’s not about discouraged workers,” said Gerald Cohen, a finance professor and economist at the University of North Carolina at Chapel Hill.
Write to Jeanne Whalen at Jeanne.Whalen@wsj.com