Comment of the Day: Robert Waldmann: Why Is the FOMC So Certain the U.S. Is "Essentially at Full Employment"?: "Two things. One small and one very dubious... http://www.bradford-delong.com/2017/05/why-is-the-fomc-so-certain-the-us-is-essentially-at-full-employment.html?cid=6a00e551f08003883401b7c8fec793970b#comment-6a00e551f08003883401b7c8fec793970b
...The small thing is that there are two buldges of the US age distribution—boomers and millenials. A prime age American is slightly more likely to be near the ends of primeness than right in the primest age. This implies slightly lower expected labor force participation than back in the good old days when we were in our primes (our host and I are (sadly) no longer prime age at all). This effect is not huge but the sign is clear and it is clearly exogenous.
The large dubious issue is that many more people are receiving social security disability pensions than in the past. There were over 3.2 million more in 2016 than in 2002 or roughly 2% of the labor force. If those people were as likely to be employed as others, the employment ratio would be about as high as it has ever been when the president wasn't named Clinton.
The problem is that it is clear that the recession certainly caused more people to receive a social security disability pension, because of a huge (roughly 50%) increase in the number of applicants per year in the worst years of the recession—people try harder to get a disability pension when they can't get a job (or a job they can handle given their boarderline disability).
However, even if endogenous, receipt of a disability benefit is pretty permanent—people aren't tossed off the program. So the increase, even if caused by the great recession, affects the full employment employment to prime age population ratio...