The stock market may be doing so well that it’s causing more Baby Boomers and Gen Xers to drop out of the labor force

The stock market's recent success has led to some Baby Boomers and Gen Xers exiting the workforce earlier than anticipated, according to recent labor force data. The overall labor force participation rate dropped to 61.4% in July, the lowest since early 2021, while the participation rate among those 55 years and older fell to 36.9%.

While some of this decline is attributed to retirement, Adam Shapiro, a vice president at the San Francisco Fed, believes a significant portion is due to wealth effects from record highs in the stock market. The S&P 500 has more than doubled since early 2021, with the overall stock market up 13.5% in 2026. However, the hiring rate remains below 4%, making job search costs high and leading some to retire instead of searching for new employment.

The advent of generative AI and President Donald Trump's immigration crackdown are also contributing to the cautious business environment. Economists argue that the declining job-finding rate for the unemployed and those out of the workforce reflects structural forces rather than a cyclical downturn.