David Leonhardt writes,
Yes, the unemployment rate has fallen. But almost the entire reason it has fallen is the drop in the number of people in the labor force — either working or actively looking…This shift long predates the recent financial crisis, too. The labor force participation rate peaked more than a decade ago… the labor force participation rate has fallen almost as sharply for people aged 25 to 54 as it has for the overall adult population.
Pointer from Mark Thoma.
Leonhardt refers to this white paper, from Express Employment Professionals, which appears to be a search firm. It says,
According to Gallup’s “Payroll to Population” measure, fewer Millennials were working full time in June of 2013 than in June of 2012, 2011, or 2010…
That paper and Leonhardt also refer to a note by San Francisco Fed economists Leila Bengali, Mary Daly, and Rob Valletta. They write,
Although the 2007–09 downturn exhibits a strong positive relationship between state-level changes in employment and participation, the recovery so far does not. This calls into question our interpretation that much of the recent participation decline is cyclical and likely to reverse. However, the current weak correlation between changes in employment and labor force participation could reflect employment’s relatively modest recovery to date. The economy has been expanding for a sustained period. But, as of March 2013, we have recovered only 67% of total jobs lost during the downturn. Thirty-seven months after the employment trough in past recoveries, employment greatly exceeded the pre-recession peak.
Leonhardt argues that the phenomenon of lower labor force participation is important. I agree.
It is hard to invoke conventional macroeconomics to explain it. Sticky nominal wages? If wages are too high, then I would think we should see labor force participation that is high rather than low. That is, lots of people would want to work because wages are too high to clear the labor market.
Casey Mulligan’s idea of a redistribution recession? As I read the recent Cato paper by Tanner and Hughes, since 1995 the disincentive to work has gone down in many states (see table 2 of their paper). For example, in Illinois, they calculate that in 1995 overall welfare benefits were a salary equivalent to $29,000, but today they are only $13,580, after adjusting for inflation. One would think that labor force participation would have increased in such states. Meanwhile, no large state shows an increase of as much as $5000. I think one would have to bring disability into the story to make the case. Indeed, the white paper from EEP says,
Fourteen million Americans, including roughly 8.5 million former workers receive disability. In 2011, that included 4.6 percent of the population between the ages of 18 and 64. These Americans are not included among the “unemployed.” And it’s estimated that less than one percent of them have returned to the workforce in the last two years.
Another story to invoke is that of job polarization. The EEP paper refers to a previous survey.
The survey also found that 53 percent of more than 400 U.S. employers say that recruiting and filling positions is “somewhat difficult” or “very difficult.”