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    Percentage of those in labor pool at 38-year low

    That lowers jobless rate but stirs growth worries

    Sophia Lewis (left) of PSEG Long Island spoke with a visitor at a job fair in New York this week.
    mary altaffer/associated Press
    Sophia Lewis (left) of PSEG Long Island spoke with a visitor at a job fair in New York this week.

    The percentage of Americans in the labor pool fell to a 38-year low in June, a decline driven by retiring baby boomers that could make it tougher for employers to eventually find workers, potentially slowing economic growth.

    Less than 63 percent of working-age Americans had a job or were actively seeking one, the lowest participation rate since October 1977, the US Department of Labor reported Thursday. The US labor force declined by 430,000 workers last month, including retirees and others who stopped looking for work.

    “The population is getting older and more people as a result are retiring,” said Richard W. Johnson, a senior fellow and the director of retirement policy at the Urban Institute in Washington. “That’s despite the fact that people are also working longer into life than they used to.”

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    The shrinking labor force contributed to a decline in the overall unemployment rate, which fell to 5.3 percent last month from 5.5 percent in May, reaching the lowest level in seven years. In a separate survey, employers said they added 223,000 jobs their payrolls in June, the 57th consecutive month of job growth nationally.

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    The job gains were largely in line with economists forecast and strong enough, analysts said, to keep the Federal Reserve on track to raise its key short-term interest rate in September. The Fed has held that rate near zero since the end of 2008, when the US economy was plunging into recession.

    Stocks fell modestly Thursday following the report. The Dow Jones industrial average fell 27.80 to 17,730.11. The broader Standard & Poor’s 500 index ended flat, at 2,076.78. The yield on the 10-year US Treasury bond declined to 2.38 percent, from 2.42 percent Wednesday.

    In addition to retirements, economists said, a variety of factors contributed to the decline in labor force participation. They included a rise in the number of educated women choosing to stay at home with their children, instead of taking a job, and increases in the number of people who are receiving disability benefits.

    About 66 percent of working-age Americans were participating in the labor force before the last recession began at the end of 2007. The slide began during the downturn and continued during the weak recovery that followed. Economists had expected labor participation to increase as the economy improved, but it has remained low.

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    “The decline is indeed a concern,” said Sara Johnson, senior research director at IHS Global Insight, a Lexington forecasting firm. “With fewer people choosing to participate in the workforce and be available for employment, we will see less growth and less income.”

    Economists attributed the continued decline to demographic shifts. Prime working-age people, between the ages of 25 and 54, are sandwiched between two giant populations of workers — baby boomers born between 1946 and 1964 who have entered retirement years, and millennials, born as late as 2004 but still in school and not part of the workforce.

    Johnson, of the Urban Institute, said that as more millennials enter the labor force, the participation rate will climb. In the interim, however, employers could face challenges finding workers. Companies will have to offer incentives to keep older workers longer, including better pay or more-flexible hours, he said.

    New England’s economy is challenged by the demographic trend because many industries in the state have benefitted from a large pool of highly skilled, well-educated workers who are retiring or are on the verge of retirement. The Massachusetts unemployment rate, 4.6 percent, is at prerecession levels.

    State labor department officials will release the June statistics in about two weeks.

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    The New England Economic Partnership, a group of regional and academic economists, has forecast that the number of workers retiring in Massachusetts will be about the same as the number of new workers entering the workforce by 2018, potentially leading to labor shortages and weaker economic growth.

    ‘With fewer people choosing to participate in the workforce . . . we will see less growth.’ --Sara Johnson, researcher

    The forecast projected that Massachusetts will add 50,000 to 60,000 jobs a year through 2016, before slowing to about 40,000 in 2017 and plunging to about 14,000 in 2018.

    Employment growth will decline not because companies don’t have jobs, but because they won’t be able to find enough workers, according to the forecast.

    “Size matters,” the forecast said. “If the labor force shrinks below a critical level and employers cannot find the talent they want, businesses could move to other regions, starting a downward spiral of investment and jobs.”

    Megan Woolhouse can be reached at megan.woolhouse@globe.com. Follow her on Twitter @megwoolhouse.