The August jobs report set two records that we need to talk about. Both involve the labor participation rate -- the share of the working-age population that has a job or is looking for a job. First, men's participation rate fell to its lowest point on record (since 1948). Second, the overall participation rate fell to its lowest point since 1981.
So, three years into a recovery, we are at a modern historical low for working-age adults who are actually working, or trying to find work. It's horrible new. It means we make less stuff, have less wealth, and pay fewer taxes. It's bad for growth, bad for deficits, bad for the stock market. (Weirdly, it also makes the unemployment rate seem artificially low.)
But why is this happening? There are two reasons. The first is that America is getting older, and more workers are entering that age where they are less likely to be employed. Imagine the enormous Boomer generation moving along this graph below, from left to right, as they age into their 60s and 70s. You can see how the labor participation rate would fall automatically, good economy or bad.
That's exactly what demographers have expected: A gradual decline in the participation rate as the Boomers retired and smaller generations beneath them struggled to replenish the working population. The dotted lines in the graph below are projected declines from before the Great Recession. The red line is what's actually happened. The hill has been steeper than we foresaw.