Taking a deeper look at labor force participation: More than 1/3 of adults not in the workforce. Reasons vary, but problem is real.

In the Seattle Times, business columnist Jon Talton comments on a new study by the Hamilton Project, an economic policy initiative of The Brookings Institution. Talton writes, 

The labor force participation rate began to rise sharply in the 1970s as many more women took jobs, and continued through the 1980s, as slowing earnings and consumer appetites required two-earner households whether women wanted to work outside the home or not. It hit a peak of 67.3 in February 2000. Then it began a decline, which turned sharp in the Great Recession. According to the U.S. Bureau of Labor Statistics, it was 62.9 percent in July.

Then he cites data from the Hamilton Project report. Rather than clip from Talton’s brief column, we’ll go to the reports “key findings.”

The key findings are:

  • Women with a high school education or lessareoverwhelmingly the largest group of Americans out of the labor force.
  • After excluding caregivers (approximately 40 percent of nonparticipants), men and women report the same reasons—and at similar rates—for not participating in the labor force. Almost 30 percent of nonparticipants report being ill or disabled, while 8 percent are students, and 5 percent are early retirees. 
  • Male and female labor force nonparticipants have very different living arrangements:
    • The most common living arrangement for female nonparticipants is living with a spouse or partner.
    • The most common living arrangement for male nonparticipants is living with a parent.
  • Almost three-quarters of nonparticipants live in a household with earned income and only 11 percent report income from the safety net while receiving no earnings. More than 1.3 million Americans out of the labor force report having no income at all—this includes a lack of both earned (through wages) or unearned (such as retirement or safety net program) income.
  • 45 percent of households (3.3 million) with a male prime-age nonparticipant and 28 percent of households (4.6 million) with a female prime-age nonparticipant are in the bottom quintile of income. (Emphasis in the original.)

Here’s why it’s important to understand who’s in and who’s out.

Our nation’s labor force participation rate, or the fraction of adults who are either employed or are searching for work, has fallen steadily since 1999. This is a trend that many economists find troubling, as the labor force participation rate is an indicator of household living standards and economic vitality. In 2016, over one-third (37.2 percent) of adults in the United States—including nearly one-fifth (18.7 percent) of prime working age adults (between 25 and 54 years old)—were not in the workforce. The large number of adults who are not in the labor force is a puzzle that cannot be fully accounted for by factors like baby boomers aging out of the workforce, women engaged in caregiving, or recent college graduates delaying the responsibilities of adulthood.  

We emphasize the importance of postsecondary education for career success. And the nonparticipation data support the emphasis.

 Nonparticipation of both men and women is higher among people with less education… There are 4.2 million male nonparticipants with a high school degree or less, representing 17 percent of men with this education level, and comprising 57 percent of all male nonparticipants.

Still, other factors contribute to withdrawal or nonparticipation. 

… we describe the reasons that prime-age men and women give for their nonparticipation…More than 70 percent of labor force nonparticipants report that caregiving, disability, or early retirement kept them out of the labor force; 13 percent were not in those categories but had recent earnings, indicating that they had been employed at some point during the previous year. Not surprisingly, caregiving is the primary reported reason for nonparticipation—characterizing about 4 in 10 individuals overall and more than half of female nonparticipants.

Excluding caregivers, male and female nonparticipants give similar answers as to why they are not in the labor force. Almost 30 percent of prime-age nonparticipants—roughly equally split between men and women—report being ill or disabled. With roughly 45 percent of prime-age male nonparticipants classified as disabled, health-related barriers to being in the labor force may represent a significant challenge.

A recent E21 article examined some of the issues associated with low labor force participation at a time of extraordinarily high job openings.

But at the same time as the vacancies, almost 60 percent of nonworking men are on federal disability benefits, according to AEI scholar Nicholas Eberstadt’s analysis of census data. Over 13.2 percent of Americans are on food stamps and 25 percent are on Medicaid. As these benefits have increased, fewer Americans are working.

Most of the decline in labor force participation is from those under 54, not from older Americans, whose labor force participation rates are increasing.

Increases in benefits have likely contributed to the decline in participation, according to University of Chicago economics professor Casey B. Mulligan… Mulligan suggests  that increases in federal benefits since 2007, such as disability insurance, food stamps, and other means tested programs, have discouraged people from working.

Striking the proper balance between incentivizing employment and making sure the safety net protects those unable to work has been a challenge since the welfare reform debates of the Clinton era, if not before. Critical questions remain unresolved; efforts like the Hamilton Project research will contribute to solutions.

The Project concludes,

Labor force participation is the key channel through which Americans contribute to and benefit from their economy, making it vital that we understand who is left out of the labor force. This economic analysis describes the characteristics of a group—male and female labor force nonparticipants—that is the focus of considerable policy concern. As policy makers seek to strengthen the U.S. labor market and address worrisome rates of nonparticipation, it is important that reforms be well-targeted to the problems revealed in the data.

…Economic growth and broad sharing in that growth are both enhanced when the labor market makes the best possible use of workers’ talents. It is therefore important to remove impediments to the full labor force participation desired by workers, contributing both to household and national economic security.

The conclusion echoes that of the E21 article cited above.

The increase in job vacancies is a welcome sign of a growing economy. Now the challenge is getting the vacancies filled.

We agree. Removing impediments to full participation is key. One of those impediments is lack of the education and training required to secure employment in a changing economy.