Economists are eagerly awaiting the December employment report, due out Friday, to see if job growth ended 2023 on a high note.

Forecasters estimate 168,000 jobs were added last month, a decent total but down from an average of about 200,000 the previous three months as economic activity cools following a post-COVID burst.

But in an economy beset by still-high inflation and interest rates, another question may loom larger: Did the labor force continue to expand sharply, or has growth peaked?

The labor force – which includes Americans 16 and over who are working or looking for jobs – has surged by 3.3 million in 2023 and the December report could confirm that it grew at its fastest pace in more than two decades.

How does an increased labor force affect the economy?

The mushrooming workforce has boosted hiring and eased labor shortages. By making job candidates more available, it also has slowed wage growth and inflation, helping persuade the Federal Reserve to pause its aggressive interest rate hikes and predict that it will cut rates three times in 2024. That has propelled the stock market near record highs.

Many economists, however, believe the historic rise in the labor force has topped out. That could keep inflation from falling to the Fed’s 2% goal more rapidly and the Fed from cutting rates as deeply. A stagnating labor force would be especially worrisome if the economy and consumer spending don’t moderate as anticipated, putting upward pressure on prices.

Why does the US workforce keep growing?

Most of the recent labor force gain can be traced to a strong rebound in immigration after COVID-related travel restrictions discouraged entry into the U.S. in 2021 and 2022, experts say.

But some economists say pent-up demand from foreign-born workers has run its course. Since June, immigration’s contribution to labor force growth has declined and has been outweighed by native-born workers, according to figures from Capital Economics and the Bureau of Labor Statistics.

Meanwhile, baby boomers are retiring in droves, with the most populous segment of that generation now reaching their mid-60s, says Brad Hershbein, senior economist at the W.E. Upjohn Institute for Employment Research.

What is the labor force participation rate today?

The labor force participation rate – the share of people working or job hunting – hit 62.8% in November, up from 62.2% a year ago but still below the pre-COVID level of 63.3%.

“I’m skeptical that overall labor force participation will rise much more from its current 62.8%, at least not for very long, as the large baby boom cohort ages out of the workforce,” says Mark Zandi, chief economist of Moody’s Analytics

He predicts the participation rate will dip to 62.7% by the end of the year and 62.5% by the end of 2025. The Congressional Budget Office is gloomier, projecting the rate will average 62.3% this year and reach 62% by the end of 2025.

Others say labor force participation can continue to climb higher, at least for a while, as more U.S.-born workers enter the job market. That could allow pay increases and inflation to fall more swiftly and keep the Fed on track to shave interest rates more steeply this year.

“There is still scope for the trend to continue,” says economist Andrew Hunter of Capital Economics.

Julia Pollak, chief economist of ZipRecruiter, a top job site, thinks the participation rate can even approach its pre-COVID level.

These groups of workers could keep fueling labor force growth, some economists say:

Women age 25 to 54

In the past couple of years, women in their prime working years who quit during COVID have flocked back to a hot labor market with rising wages, Hunter notes. Daycare centers that laid off about 375,000 workers early in the pandemic have been staffing up. And wage growth started outpacing the cost of childcare, making the service more affordable, Hunter wrote in a report.

Also, he says, the share of workers who can take paid parental leave has doubled over the past 10 years. That’s not because of state or federal laws but because many companies had to start offering the benefit to attract employees amid the labor shortages, he says.

The COVID-induced proliferation of remote work also has allowed stay-at-home mothers to work while caring for children, Hunter says.

Hershbein, though, says that trend appears to be played out. Labor force participation for women 25 to 54 hit an all-time high of 77.8% in June but pulled back in recent months, reaching 77.4% in November.

Hunter believes there's room for further gains. He notes the average female prime-age participation rate in other developed nations is still 4 percentage points higher than in the U.S. If the U.S. matched that average, it would bring about 2.5 million more women into the workforce, he says

Men age 25 to 54

Participation among prime-age men also has risen sharply, though not as much as their female counterparts. Hunter largely credits a decline in the number of 16- to 64-year-old men receiving disability benefits - from 4.2% in 2019 to 3.6% in October.

He points to the fading of the prescription opioid epidemic that peaked shortly after the 2008 financial crisis, with prescription rates in 2022 at half their level a decade earlier.

But Pollak of ZipRecruiter says that progress has been largely offset by a spike in male deaths from illegal synthetic opioids such as fentanyl.

Young adults

College enrollment has dropped in recent years. Among 16- to 24-year-olds, 30.6% were enrolled in college in 2022, down from 32.3% in 2019, according to Hunter and Census Bureau figures.

The drop was partly due to pandemic-related distance learning mandates as well as a decline in courses at two-year colleges, some of which closed because of lawsuits, Hunter says.

Also, he says, fast-rising wages in industries such as leisure and hospitality lowered the pay premium that college graduates traditionally have enjoyed, at least for some students. The labor force participation rate for 16- to 24-year-olds was 56.6% in November, up from 55.8% a year earlier.

Hershbein says that trend also has run out of steam as the job market and wage growth have cooled and enrollment has started to rebound. Average wages for employees in leisure and hospitality were up 4.6% yearly in November, compared with double-digit increases during the first half of 2022.

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65 and older workers

Many people in their 50s who retired early during COVID have opted not to return to work despite the improving labor market, according to a recent survey by Morning Consult and an analysis of BLS figures by job site Indeed.

But a new study by Hershbein shows that the hiring of men 65 and over is up 5.2% in the past year. As COVID-related health concerns have eased, many men without college degrees are coming out of retirement and taking low-wage jobs because of financial strains and high inflation.

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