Why New England’s Labor Force Participation Has Been Recovering So Slowly since the COVID-19 Pandemic
New England’s labor force participation rate—the share of the population that is either working or actively looking for work—fell a net 2.3 percentage points from 2019 to 2023 (comparing yearly averages) despite having rebounded considerably from a steep decline in 2020, during the COVID-19 pandemic recession. Across those same years, the US labor force participation rate declined just 0.5 percentage point, leaving a “participation recovery gap” of 1.8 percentage points for New England. The region’s edge over the country as a whole regarding labor force participation—always positive, if variable, since 1976—narrowed in 2023 compared with 2019. Because falling labor force participation restrains economic growth and magnifies fiscal stress, these recent developments raise concerns for New England’s economic outlook. Furthermore, the region’s currently low unemployment rate presents an incomplete picture of the health of its labor market, as low unemployment can be consistent with either a high or low labor force participation rate.
This report investigates a variety of factors that may explain why New England experienced a participation recovery gap from 2019 through 2023 and discusses the resulting policy implications. The analysis reveals that population aging and excess retirements accounted for more than one-half of the region’s recovery gap. Other contributing factors included weak participation trends among prime-age individuals and an upswing in domestic out-migration from Massachusetts, although at the regional level, the negative effect of domestic migration on participation was small. The relative weakness in the participation recovery among New England’s prime-age population was concentrated among less educated men and residents of nonmetropolitan areas. Contrary to speculation, rising childcare costs did not hold back the participation recovery in the region relative to the country as a whole, even though such costs did exert a modest drag both regionally and nationally. Cyclical shifts in labor demand captured only a very small portion of the recovery gap.
The policy implications of the results vary, as no single factor explains the overall recovery gap. Given the role of population aging, policies might seek to promote flexible work options enabling older people to stay in the workforce longer if they desire. Regarding the downward trends in prime-age participation, policies are needed to address the underlying issues holding back participation among that age group, such as a lack of opportunities in the region’s nonmetropolitan areas and elevated rates of substance use disorders. Policies might also aim to reinforce the labor force attachment of women, minorities, and foreign-born individuals, as these groups have strengthened the region’s participation recovery and comprise growing shares of the region’s workforce. Deterring domestic out-migration from New England will require addressing pervasive cost-of-living concerns. Finally, supporting further public and private investment in education and workforce training will be critical, as the region’s skilled workforce has long been recognized as key to its economic vitality.