The Congress of the United States O Congressional Budget Office

CBO

CBO’s Projections of the Labor Force

September 2004
Notes

Several figures use shaded vertical bars to indicate periods of recession as defined by the 

National Bureau of Economic Research. A recession extends from the peak of a business cycle 

to its trough.

All years referred to are calendar years.
Preface

This paper explains the assumptions behind the Congressional Budget Office’s (CBO’s) 

updated projections of the labor force. Those figures underlie some of the agency’s 10-year 

economic and budgetary projections (see The Budget and Economic Outlook: An Update, September 2004). 

The paper was written by David Brauer, with contributions from Tracy Foertsch and assistance from Amrita Palriwala and Brian Mathis, under the supervision of Kim Kowalewski and 

Robert Dennis. Christine Bogusz and Janey Cohen edited the report, and John Skeen proofread it. Maureen Costantino prepared the report for publication, and Annette Kalicki produced the electronic version for CBO’s Web site (www.cbo.gov). 

Douglas Holtz-Eakin

Director

September 2004

CBO’s Projections of the Labor Force 1

Population 3

Projecting Labor Force Participation Rates 5

People Under 25 6

Men Ages 25 to 54 6

Women Ages 25 to 54 7

People 55 and Older 7

The Effect of Changing Marginal Tax Rates

on the Projections 8

CONTENTS
vi CBO’S PROJECTIONS OF THE LABOR FORCE

Tables

1. CBO’s Projections of the Labor Force, by Age Group and Sex,

for Selected Years 2

2. Alternative Projections of the Labor Force 3

3. Estimates of the Effects of Marginal Tax Rates on Labor Supply 8

Figures

1. Comparison of CBO’s September 2004 and January 2004 Labor

Force Projections 10

2. Alternative Projections of the Size of the Labor Force Through 2014 11

3. The Overall Labor Force Participation Rate 12

4. Alternative Projections of Labor Force Participation Rates for People

Ages 16 to 19 13

5. Labor Force Participation Rates for Men Ages 25 to 54, by Age Group,

1980 to 2003 14

6A. Alternative Projections of Labor Force Participation Rates for Men

Ages 50 to 54 15

6B. Participation Rate Relative to That of the Same Cohort at

Ages 40 to 44 16

7. Labor Force Participation Rate for Women Ages 25 to 54,

1960 to 2003 17

8A. Alternative Projections of Labor Force Participation Rates for Women

Ages 50 to 54 18

8B. Participation Rate Relative to That of the Same Cohort at

Ages 40 to 44 19

9A. Alternative Projections of Labor Force Participation Rates for Women

Ages 60 to 64 20

9B. Participation Rate Relative to That of the Same Cohort at

Ages 50 to 54 21
CBO’s Projections of the Labor Force

This paper presents the Congressional Budget Office’s (CBO’s) projections of growth in the labor force 

from 2004 through 2014. It also discusses several key 

sources of uncertainty surrounding the two main factors 

that determine the size of the labor force: the size of the 

adult civilian noninstitutional population; and changes in 

the fraction of that population that is either working or 

actively looking for work—the labor force participation 

rate.1

One important source of uncertainty in developing labor 

force projections is the course of future levels of net immigration—both legal and unauthorized.2 Population 

projections are sensitive to assumptions about how many 

unauthorized residents will enter and remain in the 

United States, how many legal immigrants and refugees 

will be admitted, and how many foreign-born residents 

will choose to emigrate.3

A second key source of uncertainty is how participation 

rates for various demographic groups will evolve over 

time. The pending retirement of the baby-boom generation (people born between 1946 and 1964) will tend to 

reduce the overall labor force participation rate—especially in the latter half of the projection period. The overall rate will also be affected by trends in participation 

rates within demographic subgroups. Those trends are 

difficult to discern because it is not clear how much of 

the recent declines in participation can be attributed to 

cyclical weakness and how much represents changes in 

the trends themselves. (The overall labor force participation rate fell sharply during and after the last recession, 

from 67.1 percent in 2000 to 66.2 percent in 2003 and 

to an average of 66.0 percent in the first eight months of 

2004.)4 Furthermore, there is no guarantee that overpredictions of the labor force participation rate in some demographic subgroups might be offset by underpredictions in others, particularly if some as yet unidentified 

influence is dampening participation rates within many 

subgroups. 

A third key source of uncertainty in developing labor 

force projections is how scheduled changes in tax law will 

affect the labor force participation rate. CBO’s projections assume the continuation of current law, including 

the expiration in 2010 of both the Economic Growth and 

Tax Relief Reconciliation Act of 2001 (EGTRRA) and 

the Jobs and Growth Tax Relief Reconciliation Act of 

2003 (JGTRRA). They also assume that people deciding 

whether to participate in the labor force act as though 

EGTRRA and JGTRRA will expire. When those laws expire, some workers will face increased marginal tax rates, 

thus reducing their expected after-tax wage rates and 

1. The civilian noninstitutional population comprises people “16 

years of age and older, who currently reside in [one] of the 50 

states or the District of Columbia, who do not reside in institutions (e.g., penal and mental facilities, homes for the aged), and 

who are not on active duty in the Armed Forces.” See Department 

of Labor, Bureau of Labor Statistics, and Department of Commerce, Bureau of the Census, Current Population Survey: Design 

and Methodology, Technical Paper 63RV (March 2002), p. 5-3.

2. For purposes of this document, legal immigrants are people 

admitted as lawful permanent residents, refugees, and asylees, as 

well as people admitted as legal temporary residents. (An asylee is 

defined as “an alien in the United States or at a port of entry who 

is found to be unable or unwilling to return to his or her country 

of nationality, or to seek the protection of that country because of 

persecution or a well-founded fear of persecution.” See Department of Homeland Security, Office of Immigration Statistics, 

2002 Yearbook of Immigration Statistics [October 2003], p. 218.) 

Unauthorized immigrants are residents who either entered the 

United States illegally or were legally admitted but remained 

beyond the expiration of their visa without adjusting their status. 

Population projections also take into account flows of people 

between the United States and Puerto Rico and other U.S. territories and possessions.

3. Some categories of legal immigration are subject to numerical limits; in those cases, CBO’s projections are based on assumed levels 

under current law. However, several important categories, most 

notably immediate relatives of U.S. citizens, are not subject to 

such limits.

4. The 2004 figure is seasonally adjusted.
2 CBO’S PROJECTIONS OF THE LABOR FORCE

Table 1.

CBO’s Projections of the Labor Force, by Age Group and Sex, for Selected Years

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics.

Note: The projected labor force level and participation rate for 2014 in this table do not take into account the effect of changes in average 

marginal tax rates scheduled under current law. Including those effects reduces the projected total labor force level to 162.2 million 

and the total labor force participation rate to 65.6 percent.

modestly dampening labor force participation starting in 

2011. 

The U.S. labor force will total 162.2 million people in 

2014, CBO projects, up from 146.5 million in 2003, 

which implies an average growth rate between 2003 and 

2014 of about 0.9 percent a year. The projected figure for 

2014 is about half a million higher than the figure in 

CBO’s previous Budget and Economic Outlook, published 

in January (see Tables 1 and 2 and Figure 1 on page 10). 

However, it is slightly lower than the Social Security Administration’s (SSA’s) projection of 162.8 million people 

(see Figure 2). CBO’s projection is also slightly below the 

Bureau of Labor Statistics’s (BLS’s) projection in every 

year through 2012, the last year of BLS’s projection.5

Two commercial forecasters also project rates of 

growth—Macroeconomic Advisers (MA) and Global Insight (GI). CBO’s projection of average annual growth in 

the labor force between 2003 and 2014 falls between 

those two firms’ projections.

CBO’s forecast is below those of both SSA and BLS for 

several reasons. First, SSA’s forecast was completed early 

this year and thus did not incorporate lower-thanexpected labor force participation rates during the first 

half of the year, as CBO’s did. The two forecasts also differ in terms of the estimated population level in 2004. 

People Under 25 65.8 61.6 64.0 39.0 25.0

 Teens 52.0 44.5 47.7 16.9 8.1

 Men 20 to 24 82.6 80.0 81.0 10.9 8.9

 Women 20 to 24 73.1 70.8 72.0 11.1 8.0

Men Ages 25 to 54 91.6 90.6 90.5 62.5 56.6

 25 to 34 93.4 91.8 92.0 20.9 19.2

 35 to 44 92.7 92.1 92.3 19.8 18.3

 45 to 54 88.6 87.7 87.4 21.8 19.0

Women Ages 25 to 54 76.7 75.6 77.3 64.1 49.6

 25 to 34 76.1 74.1 78.7 21.1 16.6

 35 to 44 77.2 76.0 77.3 20.4 15.8

 45 to 54 76.8 76.8 76.1 22.5 17.1

People 55 and Older 32.4 35.7 39.3 81.8 32.2

 Men 55 to 64 67.3 68.7 68.0 19.3 13.1

 Women 55 to 64 51.9 56.6 58.3 20.6 12.0

 Men 65 to 69 30.3 32.8 33.9 6.9 2.3

 Women 65 to 69 19.5 22.7 24.9 7.7 1.9

 Both sexes 70 and older 8.3 8.8 10.2 27.4 2.8

 Total 67.1 66.2 66.0 247.4 163.3

Projected

Labor Force

in 2014

 (Millions)

Projected

Population

in 2014

(Millions)

Projected Labor Force

Participation Rate

in 2014

(Percent)

Actual Labor Force

Participation Rate

in 2000

(Percent)

Actual Labor Force

Participation Rate

in 2003

(Percent)

5. SSA’s projections, which are not published in detail, were provided to CBO by the agency. BLS’s projections are discussed at 

length in Mitra Toossi, “Labor Force Projections to 2012: the 

Graying of the U.S. Workforce,” Monthly Labor Review, vol. 127, 

no. 2 (February 2004), pp. 37-57. 
CBO’S PROJECTIONS OF THE LABOR FORCE 3

Table 2.

Alternative Projections of the Labor Force

(Millions)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics (BLS); Social Security Administration (SSA); Macroeconomic Advisers (MA); Global Insight (GI).

Notes: BLS’s projections use actual figures from 2002 as their starting point.

n.a. = not applicable.

CBO’s estimate incorporates the Census Bureau’s published estimates of the civilian noninstitutional population, by age and sex, for the first half of 2004, whereas 

that information was not available when SSA produced 

its projections. CBO’s figures show a higher total population than SSA’s do, but differences in the age distribution 

make CBO’s projection of the labor force level lower. Although the two forecasts apply common assumptions 

about population growth over the remainder of the 10-

year projection period, the initial differences in the level 

and composition of the population persist. Finally, in 

contrast to CBO’s projections, SSA’s projections after 

2010 are not adjusted to reflect the scheduled expiration 

of EGTRRA and JGTRRA. 

CBO’s forecast is below that of BLS primarily because 

BLS generally assumes higher labor force participation 

rates than does CBO within most demographic subgroups. In addition, CBO’s forecast is lower in the near 

term because BLS’s forecast uses 2002 rather than 2003 

as a starting point and because BLS focuses on long-term 

trends rather than year-by-year outcomes. However, 

BLS’s projections assume a lower rate of growth in the 

population than CBO’s and SSA’s projections assume.

Population

The latest projections for the civilian noninstitutional 

population reflect the results of the 2000 census. Those 

results indicated that the growth of the population had 

been underestimated each year since the 1990 census. Incorporating the results from 2000 in the latest population 

estimates boosted the estimated level of the adult civilian 

noninstitutional population in 2000 by about 2.9 million, and the labor force by 1.7 million. Average annual 

growth in the population during the decade was revised 

upward from 1.04 percent to 1.17 percent, with a corresponding upward revision to the growth in the labor 

force. 

Much of the upward revision in 2000 stemmed from a 

rate of net immigration during the 1990s that was higher 

than previously estimated. In that light, the projected rate 

of growth in the population beyond 2000 was probably 

also too low in the previous projections. Indeed, the Census Bureau now estimates that between 2000 and 2003, 

the total resident population grew at an annual rate of 

1.01 percent, up from its 1990 census-based projection of 

0.90 percent average growth. Those historical revisions 

indicate to some degree the uncertainty inherent in projecting the growth of the population. 

CBO Summer 2004 CBO January 2004 BLS SSA MA GI

2003 146.5 146.6 147.0 146.6 146.5 146.5

2004 147.4 148.6 148.9 148.5 147.5 147.4

2005 150.0 150.9 150.7 150.9 149.6 149.7

2006 152.2 152.9 152.7 152.9 151.5 152.1

2007 154.0 154.5 154.5 154.6 153.2 154.3

2008 155.5 155.9 156.2 156.1 154.7 156.3

2009 157.0 157.2 157.9 157.5 156.1 157.9

2010 158.4 158.2 159.4 158.8 157.4 159.3

2011 159.1 159.0 160.9 160.0 158.4 160.4

2012 160.2 159.9 162.3 161.0 159.2 161.3

2013 161.2 160.8 n.a. 162.0 159.9 162.1

2014 162.2 161.7 n.a. 162.8 160.6 162.8
4 CBO’S PROJECTIONS OF THE LABOR FORCE

The Census Bureau attributes a portion of the surge in 

net immigration in the 1990s to two temporary factors. 

In that agency’s view, some of the unexpected increase in 

immigration during the 1990s reflects the influx of relatives sponsored by people who attained legal status under 

the Immigration Reform and Control Act (IRCA) of 

1986. The Census Bureau assumes that that flow has 

peaked and that by 2010 legal immigration from Mexico 

(the most important source country for immigrants legalized under IRCA) will revert to its level of the early 

1990s.6 A second factor contributing to that surge was a 

temporary increase in the inflow of refugees. (Unauthorized immigration is not expected to change much from 

the rate the Census Bureau estimated during the 1990s.) 

In the Census Bureau’s projection, net immigration declines gradually from just over 1 million in 2002 to below 

800,000 by 2010. As a consequence of those factors, the 

Census Bureau’s recently released population projections 

show an upward revision of only 0.05 percentage points 

to its projected 2000-2014 average annual growth rate. 

The Census Bureau’s population projections are the basis 

for BLS’s projections for the adult civilian noninstitutional population, but SSA incorporates somewhat higher 

assumptions about total net immigration in its projections.7

 SSA estimates that legal immigration (net of emigration of legal residents) was about 800,000 in both 

2001 and 2002 but declined to about 560,000 in 2003 

(because of “a temporary slowdown in processing while 

increased security checks were introduced during the 

year”). Net legal immigration is assumed to rise to 

750,000 by 2005, then to decline gradually to its ultimate level of 600,000 by 2011. 

At the same time, SSA puts other (primarily unauthorized) net immigration at an annual level of 400,000 in 

2004; it projects that such immigration will remain at 

that level through 2010 and then decline to 350,000 per 

year by 2015. SSA’s assumptions imply total net immigration of between 11 million and 12 million between 2004 

and 2014, significantly higher than the roughly 9 million 

implied by the Census Bureau’s projections.8

An alternative approach to projecting net immigration is 

presented in the report to the Social Security Advisory 

Board by the 2003 Technical Panel on Assumptions and 

Methods. That report concluded that as the total U.S. 

population rises, so should the expected number of immigrants, in part because the demand for immigrants along 

with other labor is expected to expand as the population 

grows. The technical panel also suggested that the momentum from past immigration may encourage future 

flows, as a higher foreign-born population expands the 

network of people supporting new immigrants. Under 

the panel’s assumptions, instead of declining from its 

2002 level, net immigration is projected to rise to about 

1.3 million by 2014, with a total net inflow of at least 13 

million between 2004 and 2014. That figure is roughly 

1.5 million more than SSA’s official projection.

CBO elected to adopt SSA’s projections of growth in the 

civilian noninstitutional population for its latest projections, with the initial level adjusted to reflect the Census 

Bureau’s official estimates by age group and sex for the 

first half of 2004. The level of net immigration implied 

by the Census Bureau/BLS projections appears to be too 

low; indeed, the assumed rate of net immigration underlying the Census Bureau’s July 2003 population estimate 

is already higher than that incorporated in its projection 

for the same year. Consequently, SSA’s assumption of 

higher immigration appears to be more plausible. The 

technical panel’s approach is reasonable, but CBO cannot 

use the panel’s population projections directly because the 

panel assumes that total net immigration—including 

components of legal immigration that are subject to numerical limits under current law—will increase with 

growth in the total U.S. population, whereas CBO’s projections must follow current law. In addition, the techni6. Frederick W. Hollmann, Tammany J. Mulder, and Jeffrey E. 

Kalian, “Methodology and Assumptions for the Population Projections of the United States: 1999 to 2100,” U.S. Census Bureau, 

Population Division Working Paper No. 38 (2000). While the 

discussion in that paper refers to population projections that predated the 2000 census, the current projections show a higher rate 

of net immigration than the previous projections because they 

incorporate a small probability of much higher immigration. 

7. Those projections also differ somewhat in their assumptions about 

rates of fertility and mortality. However, fertility assumptions do 

not affect projections of the adult civilian noninstitutional population in 2014, as anybody eligible to be counted as part of the 

labor force that year has already been born. Differences in mortality assumptions primarily affect projections of the size of the elderly population, whose labor force participation rate is very low.

8. That difference is greater than the difference in the population 

projections of SSA and the Census Bureau largely because the 

Census Bureau projects a significantly larger population of women 

ages 75 and older.
CBO’S PROJECTIONS OF THE LABOR FORCE 5

cal panel does not provide detailed projections by age and 

sex. 

As the previous discussion illustrates, population projections represent a major source of uncertainty in projecting growth in the labor force.9

 As noted, projections of 

cumulative net immigration between 2004 and 2014 

range from about 9 million to roughly 13 million. Adjusting for the number of children in the newly arriving 

immigrant population and assuming an overall participation rate of about two-thirds implies a range of more than 

2 million (about 1.3 percent) between labor force projections for 2014 based solely on differences in assumptions 

about the level of immigration.

Projecting Labor Force 

Participation Rates

Participation in the labor force depends on various factors 

that are difficult to forecast, lending uncertainty to projections of participation. In principle, people choose 

whether to participate by weighing the advantages of 

working (primarily their expected after-tax wages and 

benefits) against the attractiveness of available alternatives 

(such as retiring, caring for children, or attending school). 

The higher the after-tax wage rate, the more likely a person is to choose to work. Changes in the supply of and 

demand for skills can also influence participation rates 

through their effects on both wages and perceived opportunities to work. In addition, wealth and nonlabor income tend to reduce participation in the labor force. Increases in income available from sources as diverse as 

welfare and disability payments, retirement income, stock 

market investments, and earnings of other household 

members also will tend to reduce participation in the labor force. Moreover, changing preferences for work relative to other activities can affect participation. 

Because those factors are difficult to forecast, CBO assesses the most likely path for the overall rate of labor 

force participation by examining participation rates by 

age and sex and by tracking the behavior of cohorts 

(groups born during specific intervals). Its projections 

take into account historical patterns for particular age 

and sex groups, patterns for specific cohorts relative to 

those of their predecessors (the cohort effect), and other 

known or predictable influences on participation. Although the discussion below is presented for fairly broad 

categories, CBO conducted its analysis at a detailed level 

(for ages 16-17, ages 18-19, and five-year age groups up 

to and including ages 70 to 74), as exemplified by an assessment of the participation rate for women ages 50 to 

54. Because their participation was considerably higher in 

2003 than it had been 10 years earlier, the projection incorporates the expectation that as the women in that cohort age, their participation rate in 2013 at ages 60 to 64 

will be higher than their counterparts’ was in 2003.

At the same time, however, labor force participation rates 

follow fairly predictable patterns over people’s lifetimes: 

participation typically peaks between the ages of 25 and 

54, then falls off sharply after the age of 55. Therefore, 

the overall participation rate depends on the composition 

of the adult population as well as on patterns within subgroups. The average age of the population has been increasing for a number of years, and that increase is expected to continue as the large baby-boom generation 

approaches typical retirement ages. In 2003, 12.5 percent 

of the adult civilian noninstitutional population was between the ages of 55 and 64, and 15.5 percent was 65 or 

older. On the basis of its population projections, CBO 

expects those shares to rise to 16.1 percent and 16.9 percent, respectively, by 2014, during which time it expects 

the percentage of the population ages 25 to 54 to decline 

from 55.7 percent in 2003 to 51.2 percent in 2014. 

Thus, over the next decade and beyond, the shifting composition of the population will dampen the overall labor 

force participation rate. Holding group-specific participation rates constant at their 2000 levels, CBO expects that 

demographic effect to reduce the overall participation 

rate by 0.7 percentage points by 2009 and a further 1.0 

percentage point by 2014 (see Figure 3).

Before adjusting for the effects of policy on labor force 

participation, CBO estimates a rate of labor force participation over all age and sex categories. In 2014, that overall rate is projected to be 66.0 percent—below both the 

actual 66.3 percent rate in 2003 and the 67.1 percent rate 

observed when the economy was at or above full employment during the late 1990s (see Table 1). Given the pop9. According to the Social Security Board of Trustees, “[T]here is a 

very wide range of opinion about the future course of immigration for the United States. Some, like the 2003 Technical Panel ... 

believe that immigration will increase substantially in the future. 

Others believe that potential immigrants may be attracted to other 

countries or that the U.S. borders could be tightened in the 

future.”See The 2004 Annual Report of the Board of Trustees of the 

Federal Old-Age and Survivors Insurance and Disability Insurance 

Trust Funds (March 2004), p. 75.
6 CBO’S PROJECTIONS OF THE LABOR FORCE

ulation projections adopted in this analysis, that implies a 

2014 labor force of 163.3 million.

In addition, the latest projections incorporate the effects 

of EGTRRA and JGTRRA, the movement of households 

into higher marginal tax brackets as their real income 

rises, and increased exposure to the alternative minimum 

tax (AMT) under current law. The scheduled expiration 

of EGTRRA and JGTRRA in 2010 is expected to 

dampen labor force participation rates in subsequent 

years. Furthermore, the historical trends used to assess the 

likely path of the labor force participation rate within 

groups were adjusted to account for the impact of past 

changes in marginal tax rates. Once those policy effects 

are taken into account, the participation rate in 2014 falls 

to 65.6 percent and the labor force projection is reduced 

by more than 1 million relative to its unadjusted level, to 

162.2 million.

People Under 25

Labor force participation rates among teens and young 

adults—both male and female—have declined sharply 

since 2000. That drop appears to predominantly reflect 

two factors: weak demand for labor during the past several years of recession and slow recovery, and a long-term 

increase in school enrollment rates (particularly increases 

in school attendance by teens during the summer 

months).10

For teens, the labor force participation rate declined from 

52.0 percent in 2000 to 44.5 percent in 2003 and an average of 43.6 percent (seasonally adjusted) during the first 

half of 2004 (see Figure 4). The teen participation rate 

will rebound only partially as the economy returns to full 

employment, CBO assumes, leveling off at 47.7 percent 

by 2010. By comparison, BLS forecasts less of a rebound, 

with a rate of 46.5 percent projected for 2012, while SSA 

projects that teen participation will reach 50.9 percent in 

2010 and then level off. 

Among people ages 20 to 24, the labor force participation 

rate declined between 2000 and 2003 from 73.1 percent 

to 70.8 percent for women and from 82.6 percent to 80.0 

percent for men. As with teens, CBO assumes a partial 

rebound, with the participation rate reaching 81.0 percent for men and 72.0 percent for women by 2010 (see 

Table 1). 

Men Ages 25 to 54

In 2003, 90.6 percent of men ages 25 to 54 participated 

in the labor force, down 1 percentage point from 2000 

and more than 3 percentage points from that group’s participation rate in the late 1970s. Weak labor demand has 

probably contributed to the short-term decline. The 

long-term decline in part reflects a shifting age mix, as the 

number of 45- to 54-year-olds—the age group in which 

participation falls off as workers begin to retire—has 

grown as a share of the entire category. Nonetheless, the 

downward trend has occurred within each of the age 

groups (see Figure 5). 

In projecting labor force participation rates for men ages 

25 to 54, forecasters face two key questions: whether and 

at what rate the long-term downward trend will persist, 

and how much of the more recent sharp decline represents cyclical factors that should reverse themselves in the 

short run. CBO projects that the participation rate for 

men ages 25 to 54 will rebound only slightly from its recent decline, reaching 90.8 percent by 2007, before falling to 90.5 percent by 2012. The decrease after 2008 in 

part reflects a continuing shift in the age mix. To project 

rates of participation for men who will be in the oldest 

subgroup—ages 50 to 54—in 2014, CBO compares the 

participation rate of men in that age group today with 

their rate 10 years earlier, when the same cohort was ages 

40 to 44. CBO assumes that the ratio between those two 

rates will be roughly constant for men in the 50-54 age 

group (see Figure 6).

CBO’s projection for men ages 25 to 54 is fairly similar to 

those of both BLS and SSA. SSA’s forecast also includes a 

rebound to 90.8 percent, followed by a gradual decline to 

90.5 percent; the only differences are at a more detailed 

level. BLS has the overall labor force participation rate 

leveling off at a somewhat higher 91.0 percent. Even so, 

the gap between CBO’s and BLS’s expected participation 

rates translates to a difference of only about 300,000 in 

the projected level of the labor force in 2014.

10. Data from the Census Bureau’s Current Population Survey indicate that the school enrollment rate in October among teens ages 

16 to 19 increased from 69 percent in 1979 to 77 percent in 

2000. That increase would tend to reduce the teen participation 

rate because students are much less likely to participate than nonstudents. In July, the teen enrollment rate rose from 10 percent in 

1985 (the first year for which data are available) to 33 percent in 

2003.
CBO’S PROJECTIONS OF THE LABOR FORCE 7

Women Ages 25 to 54

The labor force participation rate among women ages 25 

to 54 surged from just over 40 percent at the end of the 

1950s to 74 percent at the end of the 1980s. That rate 

continued to rise in the 1990s, although at a much slower 

pace, and has declined since 2000 (see Figure 7). Much 

of the historical increase reflects a generational shift, as 

women of the baby-boom generation participated in the 

labor force at significantly higher rates than their predecessors did. (That effect, however, has largely run its 

course for women of prime working age: only the 50-54 

age group continued to show a rapid increase in participation, and only that group had a higher participation 

rate in 2003 than in 2000.) In addition, women’s wages 

relative to those of men have risen despite the increased 

supply of women in the workforce. That increase in 

wages has encouraged higher participation among 

women. 

BLS and SSA differ widely in their labor force projections 

for women ages 25 to 54. For the age category as a whole 

and within each subgroup, BLS expects that participation 

rates will rise by 0.3 to 0.4 percentage points per year, 

pushing the participation rate up to 79.3 percent in 

2012. SSA projects modest increases among women ages 

25 to 34, but only a partial rebound from the decline 

since 2000 for women ages 35 to 44, and an outright decline among women ages 45 to 54. As a result, BLS’s projection of the size of the female labor force ages 25 to 54 

in 2012 exceeds SSA’s by 1.1 million people—or 1.7 million on an equivalent-population basis. 

For women ages 25 to 54, CBO assumes a participation 

rate in 2014 of 77.3 percent—above SSA’s figure but well 

below that of BLS. For the younger age groups, CBO believes that continued shifts in the demand for labor, more 

flexible parental-leave policies, and perhaps greater telecommuting opportunities will combine to raise participation rates slightly. For women between the ages of 35 and 

50, CBO assumes a flat to very slow upward trend, plus 

at least a partial rebound from the declines since 2000. 

For women ages 50 to 54, CBO projects that the labor 

force participation rate in 2014 will be 72.9 percent. Under that projection, the ratio of that group’s participation 

to the participation rate of women in the same cohort 10 

years earlier will be comparable to its level during the late 

1990s (see Figure 8). Although that ratio declined substantially during the 1990s, it appears to have leveled off 

in the past several years. Nevertheless, BLS’s projection 

for that age group implies a sharp reversal of that fall. The 

difference between CBO’s projection and that of SSA primarily reflects different starting points, as the actual participation rate over the first eight months of 2004 has 

been higher than SSA had anticipated. 

People 55 and Older

The key issues in projecting labor force participation for 

people over 55 relate to retirement and, to a lesser extent, 

disability. The long-standing trend toward declining participation among men of that age halted in the mid1990s and has since reversed modestly. Meanwhile, consistent with the trend toward higher participation among 

younger women, participation by women ages 55 to 64 

rose from between 41 percent and 43 percent throughout 

the 1970s and early 1980s to 51.9 percent in 2000, surging to 56.6 percent in 2003. In recent years, participation 

rates also have been rising for both men and women ages 

65 to 69.

The projections of labor force participation rates among 

older workers rely heavily on cohort analysis. In recent 

years, about 85 percent of men between the ages of 45 

and 49 who were in the labor force remained working 10 

years later; CBO projects that that percentage will remain 

essentially constant, but because participation among 45- 

to 49-year-olds has declined, the actual participation rate 

is projected to slip from 77.6 percent in 2003 to 77.1 

percent by 2010. 

Among 60- to 64-year-old men, participation rates have 

risen in recent years, both absolutely and when measured 

relative to the same cohort’s participation at ages 50 to 

54. CBO assumes that by 2014, about two-thirds of the 

men who had been in the labor force between the ages of 

50 and 54 will still be there at ages 60 to 64, up slightly 

from the recent average of 65 percent but up substantially 

from the low of about 60 percent in 1994 and 1995. As a 

result, the actual participation rate for 60- to 64-year-old 

men rises from its 2003 level of 57.2 percent to 58.3 percent in 2010, then declines to around 57 percent by 

2014. SSA’s assumption for that group is quite similar to 

CBO’s. BLS, in contrast, projects that by 2012, 70 percent of the men who had been in the labor force between 

the ages of 50 and 54 will be there at ages 60 to 64. As a 

result, the actual participation rate that BLS projects for 

60- to 64-year-old men rises above 60 percent. Among 

men over 65, CBO assumes that the participation rate 

will rise by about 0.1 percentage point annually, on 

average.
8 CBO’S PROJECTIONS OF THE LABOR FORCE

Projections of women’s rates of labor force participation 

also rely heavily on cohort analysis. Throughout their 

adult lives, women in the baby-boom generation have exhibited significantly higher participation rates than earlier 

cohorts, and CBO assumes that this will continue to be 

the case as that generation ages. Among 55- to 59-yearolds, the participation rate surged from 55.3 percent in 

1990 to 65.5 percent in 2003; because that group is already predominantly from the baby-boom generation, 

CBO expects little further increase. By contrast, SSA has 

that rate falling over the next decade, while BLS projects 

that the rate will continue rising at a steady pace, reaching 

70 percent by 2012. CBO’s projection reflects the assumption that about 85 percent of women in the labor 

force between the ages of 45 and 49 will remain in the labor force at ages 55 to 59, an assumption that is consistent with the average of the past several years. 

Among women ages 60 to 64, the labor force participation rate has similarly jumped, from 36 percent in 1990 

to 45 percent in 2003. CBO expects that as the babyboom generation enters that age group, the participation 

rate will continue to rise, reaching 48.8 percent by 2014 

(see Figure 9). As with the 55- to 59-year-old group, 

CBO assumes a roughly constant participation rate relative to the same cohort’s participation at ages 50 to 54. 

SSA, by contrast, has the participation rate declining to as 

low as 42 percent, as in its view a higher rate of attrition 

into retirement or disability will more than offset the cohort effect. BLS assumes that the rate of attrition will 

continue to decline and, consequently, that the participation rate will rise to 50 percent by 2012. For women ages 

65 and older, CBO assumes similar modest increases in 

participation, as it does for men.

The Effect of Changing Marginal Tax 

Rates on the Projections

As noted above, changes in tax policy can induce changes 

in the labor force. CBO’s projections reflect the scheduled expiration of EGTRRA and JGTRRA, taxpayers’ increased exposure to the AMT under current law, and the 

effect of rising real incomes pushing households into 

higher marginal tax brackets. 

To estimate those effects, CBO uses a microsimulation 

model that takes into account the actual distribution of 

household income and anticipated changes in the average 

marginal tax rate on wages. The average marginal rate is 

estimated to be 22.6 percent in 2003 following full imTable 3.

Estimates of the Effects of Marginal 

Tax Rates on Labor Supply

(Millions)

Source: Congressional Budget Office.

Note: The estimated effect on labor supply is expressed relative to 

2000 to capture the effects of not only the Economic Growth 

and Tax Relief Reconciliation Act of 2001 and the Jobs and 

Growth Tax Relief Reconciliation Act of 2003 but also real 

bracket creep and the alternative minimum tax. The righthand column predicts an increase in labor supply between 

2000 and 2003 as a result of the effects of the tax cuts. 

Because the participation rate actually fell between 2000 

and 2003, CBO adjusted its estimate of the labor supply 

downward for 2004 to 2006.

a. Percentage changes are interpolated to replace missing values 

in 2007, 2009, and 2013.

plementation of EGTRRA and JGTRRA. It is projected 

to rise to 23.8 percent in 2005 with the expiration of 

temporary relief from the AMT, and to 25.1 percent by 

2010 as a result of real bracket creep and increased exposure to the AMT. It jumps to 27.3 percent with the expiration of EGTRRA and JGTRRA after 2010, before continuing to drift upward by about 0.3 percentage points 

per year for the next two years (see Table 3). 

The microsimulation model estimates the percentage 

change in the labor input consistent with the upward 

drift in the marginal rate. CBO applied estimated labor 

supply elasticities averaging 0.07 for men and 0.5 for 

women, which implies an elasticity of 0.15 for the total

(Percent)

2000 (Base year) 25.6 0

2003 22.6 0.77

2004 22.7 0.72

2005 23.8 0.49

2006 23.9 0.48

2007 24.2 0.43 a

2008 24.5 0.38

2009 24.9 0.33 a

2010 25.1 0.27

2011 27.3 -0.08

2012 27.6 -0.12

2013 27.8 -0.16 a

2014 28.0 -0.20

(Percentage change 

relative to 2000)

Estimated Effect on 

Marginal Tax Rate Labor Supply

on Wages
CBO’S PROJECTIONS OF THE LABOR FORCE 9

labor force.11 The model allowed for the elasticity of supply for primary earners to vary on the basis of their position in the earnings distribution, with elasticities ranging 

from 0.03 for those in the top 40 percent of the earnings 

distribution to 0.17 for those in the bottom decile of that 

distribution.12 That model would imply that there 

should have been a substantial increase in the labor force 

participation rate between 2000 and 2003. Because participation actually fell during that period, however, CBO 

adjusted downward its projections of the labor force between 2004 and 2006. Some recent evidence suggests 

that the labor supply response to changes in after-tax 

wage rates might be smaller than in the past, particularly 

among married women, although that has not yet become a consensus view.13 CBO continues to investigate 

that issue.

11. The elasticity of supply is defined as the percentage change in 

labor supply in response to a 1 percent change in the after-tax 

wage rate. These estimated elasticities represent the midpoint of 

estimated empirical ranges reported in Congressional Budget 

Office, Labor Supply and Taxes (July 1996).

12. The elasticities for primary earners are based on results reported in 

Chinhui Juhn, Kevin M. Murphy, and Robert H. Topel, “Current 

Employment, Historically Contemplated,”Brookings Papers on 

Economic Activity, no. 1 (2002), pp. 79-136.

13. Bradley T. Heim, “The Incredible Shrinking Elasticities: Married 

Female Labor Supply, 1979-2003” (draft, Duke University, 

June 2004), available at www.econ.duke.edu/~bheim/files/

HeimFemLS.pdf.
10 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 1.

Comparison of CBO’s September 2004 and January 2004 Labor Force Projections

(Millions)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics.
CBO’S PROJECTIONS OF THE LABOR FORCE 11

Figure 2.

Alternative Projections of the Size of the Labor Force Through 2014

(Millions)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.
12 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 3.

The Overall Labor Force Participation Rate

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics.

Note: The figures for 1993 and earlier years are adjusted for the redesign of the Current Population Survey (CPS) based on estimates from 

Anne Polivka and Stephen M. Miller, “The CPS After the Redesign: Refocusing the Economic Lens,” in John Haltiwanger, Marilyn 

Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, NBER Studies in Income and Wealth (Cambridge, Mass.: 

National Bureau of Economic Research, 1999), pp. 249-286.

a. Based on actual and projected population by age and sex, holding labor force participation rates within demographic subgroups constant 

at 2000 levels.
CBO’S PROJECTIONS OF THE LABOR FORCE 13

Figure 4.

Alternative Projections of Labor Force Participation Rates for People Ages 16 to 19 

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.
14 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 5.

Labor Force Participation Rates for Men Ages 25 to 54, by Age Group,

1980 to 2003 

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics.

Note: The figures for 1993 and earlier years are adjusted for the redesign of the Current Population Survey (CPS) based on estimates from 

Anne Polivka and Stephen M. Miller, “The CPS After the Redesign: Refocusing the Economic Lens,” in John Haltiwanger, Marilyn 

Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, NBER Studies in Income and Wealth (Cambridge, Mass.: 

National Bureau of Economic Research, 1999), pp. 249-286.
CBO’S PROJECTIONS OF THE LABOR FORCE 15

Figure 6A.

Alternative Projections of Labor Force Participation Rates for Men Ages 50 to 54 

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.

Continued
16 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 6B.

Participation Rate Relative to That of the Same Cohort at Ages 40 to 44

(Ratio)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

Note: The participation rates for the cohort at ages 40 to 44 used to calculate the historical ratios in Figure 6B are adjusted for the redesign 

of the Current Population Survey (CPS) based on estimates from Anne Polivka and Stephen M. Miller, “The CPS After the Redesign:

Refocusing the Economic Lens,” in John Haltiwanger, Marilyn Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, 

NBER Studies in Income and Wealth (Cambridge, Mass.: National Bureau of Economic Research, 1999), pp. 249-286.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.
CBO’S PROJECTIONS OF THE LABOR FORCE 17

Figure 7.

Labor Force Participation Rate for Women Ages 25 to 54, 1960 to 2003

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics.

Note: The figures for 1993 and earlier years are adjusted for the redesign of the Current Population Survey (CPS) based on estimates from 

Anne Polivka and Stephen M. Miller, “The CPS After the Redesign: Refocusing the Economic Lens,” in John Haltiwanger, Marilyn 

Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, NBER Studies in Income and Wealth (Cambridge, Mass.: 

National Bureau of Economic Research, 1999), pp. 249-286.
18 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 8A.

Alternative Projections of Labor Force Participation Rates for Women Ages 50 to 54 

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.

Continued
CBO’S PROJECTIONS OF THE LABOR FORCE 19

Figure 8B.

Participation Rate Relative to That of the Same Cohort at Ages 40 to 44

(Ratio)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

Note: The participation rates for the cohort at ages 40 to 44 used to calculate the historical ratios in Figure 8B are adjusted for the redesign 

of the Current Population Survey (CPS) based on estimates from Anne Polivka and Stephen M. Miller, “The CPS After the Redesign:

Refocusing the Economic Lens,” in John Haltiwanger, Marilyn Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, 

NBER Studies in Income and Wealth (Cambridge, Mass.: National Bureau of Economic Research, 1999), pp. 249-286.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.
20 CBO’S PROJECTIONS OF THE LABOR FORCE

Figure 9A.

Alternative Projections of Labor Force Participation Rates for Women Ages 60 to 64 

(Percent)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.

Continued
CBO’S PROJECTIONS OF THE LABOR FORCE 21

Figure 9B.

Participation Rate Relative to That of the Same Cohort at Ages 50 to 54

(Ratio)

Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Social Security Administration.

Note: The participation rates for the cohort at ages 50 to 54 used to calculate the historical ratios in Figure 9B are adjusted for the redesign 

of the Current Population Survey (CPS) based on estimates from Anne Polivka and Stephen M. Miller, “The CPS After the Redesign:

Refocusing the Economic Lens,” in John Haltiwanger, Marilyn Manser, and Robert Topel, eds., Labor Statistics Measurement Issues, 

NBER Studies in Income and Wealth (Cambridge, Mass.: National Bureau of Economic Research, 1999), pp. 249-286.

a. BLS’s projections are based on actual values in 2002 and extend only through 2012.