From Matt Yglezias:
As of this month, the unemployment rate is now lower than it was at any point during Ronald Reagan’s administration: (and shows a version of this chart)
That said, the labor-force participation rate has fallen since Reagan’s day. That’s mostly about population aging — there are a lot more retired people now than there used to be — and a little bit about more people being in college, but that doesn’t fully explain it. The labor-force participation rate of “prime aged” men between the ages of 25 and 55 has been steadily declining for decades, and in the past 10 years the participation rate for prime aged women has fallen slightly as well.
I believe there´s something more going on. During the Reagan years, prime age participation was going up. Now, participation is way down.
But look at the whole series. Prime-age participation appears to reach a ‘steady-state’ in late 1989 (around 84%). During the 1990-91 recession it drops a tiny bit, but quickly goes back to 84.
During the 2001 recession it drops a bit more, and while it ‘considering’ returning to 84, the deep 2007-09 recession intervenes and the participation rate falls strongly and shows no sign of moving back.
The next chart shows the simultaneous behavior of NGDP. In the 2000 recession NGDP growth falters significantly but climbs back up strongly. The participation rate stops falling, but before it can return to a level closer to 84, NGDP growth first dims and then tanks. The participation rate slides to 81, and has remained stuck there for more than two years. Note that NGDP growth never went back to the previous much higher level, maybe constraining a pick-up in the participation rate.
Nevertheless, it´s much more comforting to say the problem is “structural” and outside the purview of monetary policy. I don´t believe that´s wholly true!