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Pandemic labor force participation and net worth fluctuations

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  • Miguel Faria-e-Castro
  • Samuel Jordan-Wood

Abstract

The U.S. labor force participation rate (LFPR) experienced a record drop during the early pandemic. While it has since recovered to 62.2% as of December 2022, it was still 1.41 pp below its pre-pandemic peak. This gap is explained mostly by a permanent decline in the LFPR for workers older than 55. This paper argues that wealth effects driven by the historically high returns in major asset classes such as stocks and housing may have influenced these trends. Combining an estimated model of wealth effects on labor supply with micro data on balance sheet composition, we show that changes in net worth caused by realized returns explain half of the drop in LFPR in the 2020-21 period and over 80% of "excess retirements'' during the same period.

Suggested Citation

  • Miguel Faria-e-Castro & Samuel Jordan-Wood, 2023. "Pandemic labor force participation and net worth fluctuations," Working Papers 2023-010, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:96079
    DOI: 10.20955/wp.2023.010
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19; labor force participation; retirement; returns on wealth;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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