U.S. Labor Force Participation Falls to 61.5%, Raising Concerns Over Worker Shortages

The U.S. labor force participation rate fell to 61.5 percent in June, its lowest level outside the COVID-19 pandemic since 1976, reflecting a tightening labor supply rather than a collapse in demand, according to Laura Ullrich, director of economics at Indeed Hiring Lab and a former economist at the Federal Reserve Bank of Richmond. Catherine Gioino reported for Fortune.

Economists are warning of a shrinking U.S. labor force.

Rather than viewing the decline as evidence that discouraged workers are leaving the labor force, Ullrich said the data point to a shrinking pool of available workers.

"Historically, you've been able to look at jobs numbers like what came out on Friday and say, 'Okay, there was a decline in leisure and hospitality. Well, that means there's less demand for those workers,'" Ullrich told Fortune.

"But I think now, and more commonly as we go forward, it actually could be labor supply driving some of that. There are two reasons why you might not add jobs in a month: One is there's no demand for workers; the other is there is demand, but there's not enough supply."

Ullrich co-authored the May report, "The Great Mismatch: How a Shrinking Workforce, AI, and Labor Reallocation Will Define the Next 15 Years," which projects that the U.S. labor force will begin shrinking in 2026.

The report attributes the trend primarily to tighter immigration policies and what Ullrich describes as the "demographic cliff," driven by the accelerating retirement of the baby boomer generation.

Indeed Hiring Lab estimates that the labor force will shrink by approximately 3.7 percent, or 5.9 million workers, between 2025 and 2032 before partially recovering.

The report also projects that the unemployment rate could rise by 0.5 to 3.5 percentage points by 2040, reaching nearly 8 percent under the most severe scenario.