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Social Mobility Memos

What we know—and don’t know—about the declining labor force participation rate

Eleanor Krause and Isabel V. Sawhill

Today’s unemployment rate of 4.8 percent, showing the United States still nearing “full employment,” will dominate the mainstream news. But behind the headlines is a troubling, stubborn trend: men and women dropping out of the labor force. Today’s report confirms this decline, with the labor force participation rate sitting at 62.9 percent compared to its 1990s peak of 67.3 percent.

This declining participation rate, particularly among prime-age workers (ages 25 to 54), and its implications for the economy, is receiving increased attention from scholars, journalists, and policymakers in recent years. There have been a flurry of recent studies. So, what have we learned?

Prime-age male labor force participation has been declining for over half a century

The share of prime-age men in the labor force has declined from its peak of 98 percent in 1954 to 88 percent today, reports the Council of Economic Advisers. This precipitous decline was largely masked as women entered the workforce in record numbers up until the 1990s, when their participation rate began to stagnate and eventually decline as well:

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Prime-age male participation has fallen most dramatically for black men, those with a high school degree or less, nonparents, and veterans:

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What’s causing the decline? It depends on who you ask.

Explanations for the decline tend to focus on supply-side factors (workers are ill-fit for the jobs available) or demand-side factors (employers aren’t hiring). The CEA leans more on the demand side, suggesting that trade and technology have reduced demand for less-skilled labor, principally in the manufacturing sector.

Authors

But not all experts agree with this assessment. In Men Without Work, Nick Eberstadt provides a meticulously-documented account of a “flight from work.” Eberstadt concludes that the problem largely lies in the supply of skilled, able, and willing workers, and points to the rise in reliance on disability insurance. Alan Krueger shows that self-reported disability and pain is significantly higher among men out of the labor force: one-third of prime-age men not in the labor force have a disability, compared to 2.6 percent of prime-age employed men. Half of those not in the labor force take pain medications daily. Anne Case and Angus Deaton show that midlife mortality rates due to addiction, depression, and suicide are rising—but only for white, prime-age adults. Their research does not imply that the skyrocketing mortality rates are caused by declining labor force participation, but these trends are worrisome nonetheless.

There are likely many more factors dragging down America’s prime-age labor force participation rate—increasing numbers of individuals lack the skills necessary to perform today’s jobs. Rising incarceration rates have left growing numbers of Americans with criminal records. Many men might be unwilling to work in the rapidly growing, but traditionally female-dominated professions.

What’s the right policy response to labor force detachment?

We are getting a little more clarity on the nature of the problem; but solutions are less clear-cut. Our colleague Ron Haskins points to the importance of reducing work disincentives in existing safety net programs. Francine D. Blau and Lawrence M. Kahn show that America’s lack of “family-friendly” policies are preventing women from working at the same rate as our international peers (a federal paid leave policy would be a good start). Most importantly, transforming education and training programs to prepare workers with the skills demanded by today’s economy will be critical to putting Americans back to work.

Lower unemployment rates are, of course, good news. But the problems with the labor market run deeper, and must be addressed if our economic fortunes are to be seriously improved.

To learn more, read the report here.

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