NCPA - National Center for Policy Analysis

Perhaps the Aging Workforce Lowered Unemployment

November 5, 2001

Economists are trying to reconcile the fact of low unemployment in the 1990s, coupled with quite tame inflation. When America started working at almost full capacity, they expected to see inflation heat up -- which it didn't.

Now a study by Abbigail J. Chioto and Michael T. Owyang, published by the Federal Reserve Bank of St. Louis in the October issue of the Regional Economist, explains the phenomenon by looking at the aging of the work force.

  • The share of workers 35 and older rose from less than 54 percent of the labor force in 1990 to almost 62 percent today.
  • The study found that the aging labor force accounted for half of the eight-year drop in unemployment -- since workers over 35 typically have a rate of unemployment only half that of younger workers.
  • Earlier research by Robert J. Shimer of Princeton University argued that older workers were more skilled and more likely to be matched with jobs where they were productive -- thus holding down inflation.
  • By contrast, younger workers are more prone to move in and out of jobs in search of a career that suits them -- which shows up in higher unemployment.

The St. Louis study also found that improving technology helped keep low unemployment from rekindling inflation by increasing worker productivity.

Source: G. David Wallace and Peter Coy, "Economic Trends: Older Now -- and Steadier," Business Week, November 5, 2001; Abbigail J. Chioto and Michael T. Owyang, "Low Unemployment: Old Dogs or New Tricks?" Regional Economist, October 2001, Federal Reserve Bank of St. Louis.

 

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