Since the depths of the recession, more Americans are working and a steadily shrinking number are officially unemployed. That’s good! But there’s another category: People who are neither working nor unemployed. They’re just not looking for a job. That number has started to shrink, but not by as much as economists expected. So what’s keeping discouraged workers — people who have given up looking for a job — on the sidelines? It’s not just an academic debate — fewer people competing for each job mean wages will rise. That would be welcome, but too much wage pressure could push inflation above the U.S. Federal Reserve’s target. This is much on the mind of Fed officials as they ponder how quickly to raise interest rates.
The labor force participation rate — the share of Americans with a job or trying to find one — fell steeply when the recession began and stayed unusually low. By September 2015, participation had sunk to a four-decade low of 62.4 percent. A year later, enough workers had streamed back into the labor force to boost participation to 62.9 percent. The increases, however, come against a longer-term pull shrinking the labor force: the aging of the baby boom generation. Separating one trend from another can be tricky. One U.S. Federal Reserve paper credited retirements for as much as 80 percent of the decrease in labor force participation during the two years ending in 2013.
Beginning in about 1965, labor force participation began to swell as baby boomers started jobs, and then rose further as an increasing number of women entered the workplace. The labor force participation rate peaked at 67.3 in January 2000, right as the oldest baby boomers reached their last year in the prime working ages of 25 to 54. Now, retirements are running at a far faster pace. Surveys show that while more older Americans are willing to work past 65 than a decade or two ago, that group is still a minority. And the size of the baby boom cohort means that retirees will continue to drag down the share of Americans at work. The Bureau of Labor Statistics projects that by 2024 the labor-force participation rate will be down to 60.9 percent.
One of the questions is how much higher the labor participation rate might rise. The recent increase was predicted by many economists, since a recovering economy generates new jobs, making job searches easier. But most analysts expect that the demographic force of baby boomers reaching retirement will eventually overwhelm any short-lived participation gains. There are other hurdles. Almost half of American men in their prime working years who are discouraged workers are likely suffering from job-limiting health conditions. For women, soaring costs for hired childcare and lack of family-friendly workplace policies have caused many to stay home to care for children. The share of working-age women in the labor force has declined to 57 percent from a high of 60.3 percent in 2000. And some job-seekers have been written off. Employers are often reluctant to hire ex-offenders, even those convicted of minor crimes. This has prompted campaigns like Ban the Box, which asks employers not to ask about criminal history until late in the process. Of course, not everyone is convinced that the participation rate is doomed. Young adults age 25 to 34 have started to started to join the ranks of the employed; many expect that the millennial generation (born from 1981 through 2000) will offset the declines caused by retiring baby boomers. Wages have begun to tick up; beefier paychecks might tempt watch-and-wait people. And some argue that economic policies that lead to faster growth would convince even more potential workers to take jobs. But whether it’s child-care solutions or better medical treatments, most economists agree something should be done to bolster the labor force. It will be harder to sustain the growing numbers of people collecting Social Security with fewer workers paying into the system.
The Reference Shelf
- Data from the Bureau of Labor Statistics on the labor force participation rate.
- How the U.S.’s labor force participation rate compares with that of other countries.
- Research from President Barack Obama’s Council of Economic Advisers outlining causes for the decline in labor force participation and policy implications.
- Research from the Federal Reserve Bank of Philadelphia breaking down the reasons for nonparticipation, and papers by the International Monetary Fund and the Federal Reserve Board.
- A brief from the Center for Retirement Research at Boston College on the impact of aging baby boomers on labor-force participation.
- Ban the Box and other efforts to keep employers from asking about criminal records early in the job application process may have had unintended consequences, according to a National Bureau of Economic Research study. The researchers found evidence that hiring managers are instead relying on racial stereotypes to guess who might have a past conviction.
Victoria Stilwell contributed to an earlier version of this article.
First published May 15, 2014
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