Why the U.S. Jobless Rate Keeps Drifting Lower

The other half of the decline comes from lower unemployment within demographic groups. A worker of a given age, gender, and education level is less likely to be unemployed today than a worker with the same profile decades ago. The paper traces this to cohort effects: newer generations entering the labor force carry lower unemployment propensities than the generations before them. That is a durable shift, not a temporary one.

Men's trend unemployment began to edge down in the early 1990s, while women's decline became clearer around 2000, with college-educated women starting earlier. The gender difference matters for the story, but the bigger aggregate driver remains age and education composition.

Hornstein and Kudlyak project that these demographic tailwinds will keep blowing. The trend unemployment rate is expected to drift down to about 4.4% by 2044, a further 0.4 percentage point drop. Aging and education will continue to shift the labor-force weight away from younger, higher-unemployment groups and toward older, more-educated workers. Aging does pull down overall labor force participation because older people are less likely to work, but it also lowers unemployment because those who stay in the workforce have very low jobless rates.

The paper's bottom-up approach estimates trends for 44 groups defined by age, gender, and education, then weights them by population shares. That method separates compositional change from genuine improvement within groups. The results suggest that the secular decline in unemployment is not a policy artifact or a statistical quirk. It is baked into the demographic structure of the country.

For markets and policymakers, the implication is that the labor market's floor is lower than it used to be. A 4% unemployment rate today does not signal the same degree of tightness it would have in the 1980s. The Fed's dual mandate runs through a labor market that is structurally different from the one the Taylor rule was built on. The research provides a framework for recalibrating that view.