March 12 2014

Where Have All the Workers Gone?

Rachel DiCarlo Currie

It’s a debate that has raged for several years now: How do we account for the decline in America’s labor-force-participation rate (LFPR)?

After peaking at 67.3 percent in early 2000 -- following a decades-long increase in female participation -- labor force participation dropped to 66 percent in December 2007, which is when the Great Recession officially began. Since June 2009, when the recession formally ended, the LFPR has fallen from 65.7 percent to 63 percent. (In late 2013 it actually went below 63 percent for the first time since 1978.) The rate stayed constant from January to February, according to the latest (seasonally adjusted) BLS employment data, even as the labor force grew by 264,000 and the economy added 175,000 nonfarm payroll jobs.

Some economists think the recent decline in the LFPR can be explained mostly by the ongoing retirement of the Baby Boomers. Others believe it stems largely from the magnitude of the recession, the sluggishness of the recovery, and the frustration of unemployed workers who’ve decided to quit the labor force. Last month the Congressional Budget Office (CBO) weighed in:

"Of the roughly 3 percentage-point net decline in the labor force participation rate between the end of 2007 and the end of 2013, about 1½ percentage points was the result of long-term trends (primarily the aging of the population), about 1 percentage point was the result of temporary weakness in employment prospects and wages, and about one-half of a percentage point was attributable to unusual aspects of the slow recovery that led workers to become discouraged and permanently drop out of the labor force."

In other words: Factors related to the Great Recession and its aftermath account for roughly half the post-2007 decline, according to CBO’s calculations.

While the debate won’t be resolved anytime soon, it’s worth noting that America has witnessed a long-term decline in labor-force participation among men aged 25 to 54 -- which is to say, among men in their prime working years. In January 1961, when President Kennedy assumed office, the LFPR among this cohort was 96.8 percent. In January 1981, when President Reagan entered the White House, it was 94.2 percent. In January 1993, when President Clinton was first inaugurated, it was down to 92.6 percent. In January 2001, when President Bush took the oath, it was 91.7 percent. By January 2009, when President Obama was sworn in, it had dropped to 90 percent. That’s where it stood when the Great Recession officially ended (in June of the same year). Since then, it has fallen to 88.3 percent.

Thus, the overall decline between January 1961 and February 2014 was 8.5 percentage points, and the post-recession decline was 1.7 percentage points. (Meanwhile, CBO observes, “Participation among women in the same age group rose steadily between the 1950s and late 1990s, but then flattened for several years and fell by 1.8 percentage points from 2009 to 2013.”)

It is in this context -- the context of a long-term decline in labor-force participation among prime-working-age men, which in recent years has accelerated -- that Obamacare’s potential impact on the labor supply becomes even more alarming.

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