There are nearly two jobs for every worker today, but not every able-bodied worker is choosing to work. 

Everyone loves the party game “Two Truths and a Lie.” Can you identify which of the three following statements about labor force participation is a lie?

A. There are fewer workers in the labor force in 2022 than before the pandemic began.
B. Pandemic benefits such as expanded unemployment, and stimulus checks, have disincentivized work.
C. Most labor force dropouts are moms and dads.

A. TRUTH. The labor-force participation rate measures the share of the population 16 years and older who are working or seeking work. In August 2022, it rose to 62.4% up from 62.1% in July. The labor force participation rate remains one percentage point below the prepandemic rate of 63.4%.

As a result, the labor force is roughly 600,000 workers smaller than in early 2020. If you adjust for the increase in population there would be 3.4 million more people in the workforce today. 

Workers are missing from all industries and states and the severe worker shortages are driving prices higher and services down. 

B. TRUTH. During the pandemic, the government at all levels provided American households with many forms of aid with no work requirements attached:

  • households received three rounds of federal stimulus checks;
  • state unemployment benefits were enhanced with a $600 monthly bonus from the federal government and expanded to workers who would not traditionally qualify;
  • the child tax credit was increased in amount, expanded to more households, and paid out in monthly checks for six months;
  • food stamps were enhanced and expanded to more households;
  • the federal government has deferred payments by borrowers on student loans for over two years; and
  • some jurisdictions enacted rent moratoriums for over one year. 

States and jurisdictions may have had other aid programs and payments for residents.  

The effect of this much aid was to create a disincentive for unemployed workers to seek work The National Bureau of Economic Research confirmed that unemployment benefits significantly reduced the number of workers.

C. LIE. At the start of the pandemic, parents who could not work remotely dropped out of the labor force to oversee their children’s virtual learning. However, labor data finds that employment among working parents has largely rebounded from its 2020 lows. Childcare and virtual learning are no longer issues and do not warrant a federal policy response.

A significant number of workers who have left the workforce are older workers who retired (early) during the pandemic. Whether because of illness, caregiving, or fear of virus exposure, retirement rates went from 48% to 51%. Among those 55 and up, 38.7% were working or looking for work in July, down from 40.3% before the pandemic. 

New entitlements and benefits may not incentivize these older workers to return to the labor force. However, engaging them in other forms of employment such as independent contracting may be the way to encourage them to return on their schedule and terms.

Bottom Line

With fewer workers now than before the pandemic, our economy is struggling to produce enough goods and services to meet demand. That mismatch between demand and supply drives prices higher (inflation). We can encourage sidelined workers, who are largely retirees, to consider engaging their labor in flexible ways.