FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 10 August 2016

Puerto Rico's Shrinking Labor Force Participation - Part 3 Of 5

from Liberty Street Economics

-- this post authored by Jason Bram and Harry Wheeler

A key concern about Puerto Rico's prospects is that its labor force participation rate, which is the percentage of the adult population either working or looking for work, has fallen sharply. Looking at the data shows that this decline cannot be attributed to any particular demographic segment. Instead, it is the consequence of an aging population, accelerated by a falling birth rate and outmigration of a relatively young cohort.

Expected demographic trends will continue to put downward pressure on the participation rate over the medium term, creating a challenging headwind for the economy to overcome.

The size of the labor force has declined much more sharply than the size of the adult population, reflecting falling labor force participation. The chart below shows trends in Puerto Rico's labor force against its total population and adult population. While much has been made of thedecline in Puerto Rico's population since 2000, the decline in the adult population has been more modest, starting only in 2010. This fact can be explained by declining birthrates (so, fewer individuals moving into the adult population) and outmigration picking up in the post-2010 period. More dramatic, however, is the shrinking labor force: after increasing more than 10 percent from 2001 to 2006, Puerto Rico's labor force has since plummeted 20 percent and stands at its lowest level in more than twenty-five years. Based on data from the Puerto Rico Planning Board, the labor force participation rate increased from 46 percent in 2000 to 49 percent in 2006, only to decline to 40 percent in 2014, where it has remained since. For reference, labor force participation has also declined in the U.S. mainland since 2006, but not nearly as sharply and from a significantly higher level - from 66 percent to 63 percent.

LSE_2016_Puerto Rico’s Shrinking Labor Force Participation

So how pervasive is this decline in the labor force participation rate? To examine this question, we rely on labor force data in the American Community Survey (ACS). This data set allows us to consider labor force participation by age. Note that methodologically consistent data from the ACS are only available back to 2008, when the questions on labor force status were modified. In the chart below, we plot labor force participation rates for the mainland and for Puerto Rico by age for two years: 2008 (the earliest comparable year) and 2014 (the most recent year available). It should be noted that the ACS tends to report higher levels of overall labor force participation for Puerto Rico than the Planning Board: for instance, the ACS estimates that labor force participation among all adults fell from 48 percent in 2008 to 45 percent in 2014, while the Planning Board reports that the rate fell from 46 percent to 40 percent. This discrepancy reflects a combination of methodological differences.

LSE_2016_Puerto Rico’s Shrinking Labor Force Participation

What is striking here is not only that labor force participation rates are substantially lower in Puerto Rico than on the mainland across all ages, but also that they start dropping off at a much earlier age. Another observation, more in tune with identifying the cause of Puerto Rico's labor force participation decline, is that participation rates in Puerto Rico did not change much by age groups over this period. They did decline noticeably for people aged 15 to 19, but declined only modestly for those aged 55 and over.

The failure to pinpoint the source of the overall decline in the labor force participation rates suggests something else is at work, namely the aging of the population. That is, people are moving into age groups where the propensity to work tends to be lower. To that end, while the adult population has not declined significantly since 2000, its age composition has. The population 65 and older has increased substantially since 2000, while the population of young adults (15 to 24) has fallen. Moreover, the population age 5 to 14 (those coming of working age over the next decade) has fallen even more sharply. One factor is that Puerto Rico's birth rate has tumbled by one third over the past fifteen years. This decline, coupled with a large outmigration of younger individuals that gained momentum in recent years, has shifted the composition of the Puerto Rico population fairly dramatically towards older cohorts. The chart below shows the shift in each age group's share of the population from 2000 to 2014.

LSE_2016_Puerto Rico’s Shrinking Labor Force Participation

As shown earlier, labor force participation on the island starts dropping off noticeably after age 40. Thus, as more and more people move into these older age groups, fewer and fewer Puerto Ricans are likely to participate in the labor force - much more so than on the mainland, where participation stays fairly high until around age 55. This combination largely accounts for the sizable aggregate decline in Puerto Rico's labor force participation.

To show how large this effect has been, we ask the counterfactual question, "What would have happened to the labor force participation rate if its age mix had not changed?" In contrast with the actual decline of 3.2 percentage points from 2008 to 2014, the counterfactual exercise estimates that labor force participation would have declined by a more moderate 0.7 percentage point.

As a final exercise, we project the future trajectory for labor force participation, based on changes in the age mix. Holding labor force participation rates within five-year age cohorts constant at their 2014 level, based on our population projections for each of these groups, we estimate that overall labor force participation will decline another 3 percentage points from 2014 to 2020 due purely to age effects. Migration among the young accelerates this process, so incentivizing young individuals to stay in Puerto Rico and encouraging them to participate in the labor force will be of vital importance to Puerto Rico's efforts to get its economy back on track.


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.


About the Authors

Bram_jasonJason Bram is a research officer in the Federal Reserve Bank of New York's Research and Statistics Group.

Wheeler_harryHarry Wheeler is a senior research analyst in the Bank's Research and Statistics Group.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
October 2016 Conference Board Consumer Confidence Declines
Richmond Fed Manufacturing Survey Remains In Contraction In October 2016.
October 2016 Chemical Activity Barometer Continues to Signal Improving Economic Growth
Case-Shiller Home Price Index August 2016 Year-over-Year Rate of Growth Marginally Improves
Russia Falls Into Old Habits
Infographic Of The Day: Commodity Update, Is The Summer Slump Over
Early Headlines: Asia Stocks Mixed, Oil Mixed, Voting Fraud, Pres. Forecast Little Changed, CETA Not Dead, Generous Iraqis, Terrorists In Pakistan, Duterte Wants Divorce From US And More
October 24, 2016 Weather and Climate Report - La Nina / El Nino?
Most Read Articles Last Week Ending 22 October
Londoners Most Uneasy About Chatting To Strangers
Average Gasoline Prices for Week Ending 24 October 2016 Now Higher Than One Year Ago
Earnings And Economic Reports: Week Starting 24 October 2016
New Findings: Anxiety Is Linked To Death From Cancer In Men
Investing Blog
Slow Motion Torture
The Week Ahead: How Long For This Trading Range?
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Preparing For Post-Election Social Unrest
Live Markets
25Oct2016 Pre-Market Commentary: Wall Street Pensive Awaiting Corporate Earnings And Economic News
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved