Policy: Labor

The three myths of labor force participation

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Opinion,Diana Furchtgott Roth,Columnists,Labor,Economy,Unemployment

The percentage of Americans who are working or who are looking for work has declined sharply since the 2007-2009 recession. The labor force participation rate is now at 62.8 percent, equal to 1978 levels before the movement of women into the labor force during the 1980s.

Productive talent is sitting on the sidelines. Potential workers, discouraged by fruitless job searches, have left the labor force. Nevertheless, the exodus of workers from the labor force has spawned a number of myths from apologists who say that matters are not as dire as they seem.

Myth 1: The population is aging, so people are retiring earlier

You often hear that labor force participation is declining because older people are retiring. No harm in that, right? But since 2000, the labor force participation rates of workers 55 and older have been rising steadily, and the labor force participation rates of workers between 16 and 54 have been declining. The labor force participation rate of Americans 55 and older has increased by 5 percentage points from 2003 to 2013, and by 2 percentage points since the beginning of the recession in 2007. These men and women have seen increases in labor force participation rates and employment levels.

Compared with all other groups, unemployment rates were lowest for the 55+ age group in 2013 and have seen the smallest percentage point increase since the recession.

Myth 2: Kids are in school, so it doesn’t matter

In 2013, 55 percent of 16- to 24-year-olds were participating in the labor force, compared to 62 percent in 2003, a decline of 7 percentage points.

Although this is a substantial decline, a common myth is that since these young people are in school, the change does not matter — because they are getting an education that will get them better jobs in the future. But the percentage of 16- to 24-year olds enrolled in high school, college, or university has risen by only 0.3 percent over the past decade, from 56 percent to 56.3 percent, an insignificant amount. These people are not in school, nor are they working.

Myth 3: It’s just men, part of a long-term trend

Male labor force participation has been declining for decades as they retire earlier and move from heavy manufacturing, with its hours of overtime, to higher-paying 9-to-5 service-sector jobs. But the shrinkage of the labor force over the past 10 years, especially since the recession, has hit both men and women — except for those older than 55.

Since 2007, the labor force participation rate of men 25-54 has gone down by more than two percentage points. For women it is one percentage point. For 16- to 24-year-olds, the rate has declined by five percentage points for men and four percentage points for women.

Everyone would be happier if these myths were true. The labor force would be in better shape. But we need to face facts and act.

The facts: Since the beginning of the recession in 2007, 2 million fewer Americans are employed. The 25-54 age group has seen a decline in employment of 6 million workers. The 55+ age group has seen an increase in employment of 6 million workers. Employment in the 16-24 group is down by 2 million.

This slow bleed of talent is a tragedy. Congress and the president need to jumpstart growth by reforming taxes and streamlining regulations, so employers start hiring and discouraged workers return to work.

Examiner Columnist Diana Furchtgott-Roth (dfr@manhattan-institute.org), former chief economist at the U.S. Department of Labor, is a senior fellow and director of Economics21 at the Manhattan Institute for Policy Research.

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Diana Furchtgott-Roth

Columnist
The Washington Examiner