Prime-age labor force participation rate rises, defying market softness

US unemployment is on the rise and job creation has slowed, yet the share of employed prime-age Americans has matched its highest level in over two decades.

In June, the labor force participation rate, or the rate of those employed or actively seeking work, for prime-age workers climbed to 83.7%, tying the highest level since February 2002, the US Bureau of Labor Statistics reported July 5. Prime-age workers, those between 25 and 54, accounted for about 65% of all US workers in June.

This could signal that the American jobs market remains robust even as inflation cools, the threat of a recession remains and the Federal Reserve is expected to begin easing monetary policy by cutting interest rates as soon as September.

"Overall participation is on a downtrend because of demographics: the population is aging," said Guy Berger, director of economic research at the Burning Glass Institute. "So, I put a lot of weight on the fact that prime working age participation is holding up well. I think it means you don't worry about the increase in the unemployment rate as much as you would normally."

The participation rate for prime-age workers is up from 82.2% in June 2019, meaning that there are over 3.8 million more workers in this group employed or looking for work compared to five years ago, before the pandemic began.

"The continued rise in the prime-age labor force participation rate has been one of the most encouraging trends for both the short- and long-term health of the US job market," said Luke Pardue, policy director at the Aspen Economic Strategy Group. "The increase in labor force participation among prime-age workers is one of the strongest forces working against the fundamental, long-term challenge the aging population poses to the US economy."

Within the prime-age workforce, those between 35 and 44 saw their group's participation rate rise to 84.6%, the highest since April 2001.

"This is important because these millennial workers are likely entering their prime earning and consumption phases of their lives, and they will continue to support aggregate consumer spending so long as they remain confident in maintaining employment," said Thomas Simons, a senior economist at Jefferies.

The rise in participation is unique to prime-age workers, however. The overall labor force participation rate for the US workforce was 62.6% in June, down from 63% in June 2019. The rate for 20- to 24-year-olds was at 71% in June, down from 72.4% five years earlier, as employment struggles for America’s younger workers persist.

And the participation rate for senior workers, those 55 and older, was at 38.2% in June, down from 40.1% in June 2019 and tied for the lowest rate for this group since 2006.

"This shift comes as an entire cohort of workers retired early in the face of the global pandemic, and many have been able to remain out of the labor force with large savings boosted by a strong stock market," said Pardue of Aspen.

The decline in participation in the job market for older Americans has coincided with a 6.2% growth in the population of Americans 55 and older. The population of prime-age workers has risen less than 2% over the past five years, by comparison.

Signs of softness

Meanwhile, the overall unemployment rate rose to 4.1% in June, its highest level since November 2021. The unemployment rate was 3.5% for prime-age workers, 2.8% for those 55 and older and 7.5% for 20- to 24-year-olds.

About 1.33 million jobs were added through the first six months of 2024, or about 222,000 per month. This is well below the job growth of nearly 1.74 million jobs added in the first half of 2023, or about 289,000 per month, and the 2.59 million jobs added in the first half of 2022, or about 431,000 per month.

While prime-age labor force participation is near historic highs, there are signs of softness in the labor market, said Daniel Zhao, lead economist and senior manager on Glassdoor's economic research team.

Labor force participation is growing faster than employment, which is pushing up the unemployment rate. New and returning entrants to the workforce, such as new college graduates and parents looking to return to work, are finding sluggish hiring and a market unable to fully absorb the growing labor force, Zhao said.

Still, previous worries that prime-age labor force participation had permanently shifted lower have disappeared as the strong jobs market has pulled in more workers.

"There is still room for the prime-age labor force participation rate to improve if the job market dodges a recession and reaccelerates," Zhao said.

The rise in the participation rate for prime-age workers could be due to the ongoing rise in immigration into the US. The percentage of foreign-born workers in the US labor force was about 19.1% in June, up from 16.2% in June 2020, said James Knightley, chief international economist with ING.

"It is likely that most economic migrants are in the 25 to 55 age group," Knightley said. "Far fewer are in the 55 and over group and many foreign immigrants in the under 25s are likely to be students."

This strong growth rate driven by foreign workers will likely slow, particularly if Donald Trump wins the presidential election in November, Knightley said.

"For now though, this increase in available workers is contributing to the rise in the unemployment rate and will help to limit wage increases as supply increasingly outstrips demand," Knightley said. "From an employers' perspective, this is good news as more people with good skills at a slower rate of cost increase can help relieve pressures that many businesses have been feeling — it certainly allows them to be more selective in terms of who they offer jobs to."