The Incredible Shrinking Workforce

October 31, 2013

The great American jobs machine is faltering, and it is time for Washington to pay attention.  Part of the problem is the weakness of the current economic recovery. During the Great Recession, the labor-force participation rate declined. But even after the downturn ended in mid-2009, the rate continued to decline. The aging of the U.S. workforce explains only a fraction of this worrisome development.

As Johns Hopkins economist Robert Moffitt showed in a 2012 paper, another key job-market measure, the employment-to-population ratio, was declining for nearly a decade before the Great Recession began.

  • Between March 1999 and March 2007-two months in which the official unemployment rate was identical-this ratio declined by 2.3 percentage points, to 71.8% from 74.1%.
  • For men it was more-2.7 points. But even for women, the ratio declined by 1.7 points, reversing an upward trend that had lasted more than three decades.

As Mr. Moffitt observes, the 1999-2007 decline was steepest among younger and less educated workers-especially the unmarried.  During this period:

  • The employment-to-population ratio fell by 1.6 points for married men but almost twice as much-2.9 points-for unmarried men.
  • Among women, the gap was even more dramatic-2.9 points for unmarried women versus only 0.3 points for their married counterparts.
  • Children correlate with work for women in much the same way that marriage does for men: The employment-to-population ratio declined by 3.5 points for unmarried women without children while hardly budging for unmarried women with children.

Mr. Moffitt found few changes in tax policies, means-tested programs and entitlements that could explain these trends. Falling real wages account for some of the employment-to-population decline among men.

But real wages rose for women between 1999 and 2007. It is tempting to speculate that the shift away from marriage may depress work incentives for men and (less intuitively) that the deferral of childbirth may do the same for women. But we don't know for sure.

What we do know is that the start of the third millennium marked the end of a long cycle in the U.S. employment market:

  • In the early 1960s, labor-force participation among men ages 25 to 64 began a slow steady decline from 95% to about 84% today, a trend masked by the surge of women into the labor force.
  • But women's participation in the labor force peaked in 2000 and has since declined by two percentage points. Unless men re-enter the job market, prospects for the resumption of vigorous growth in the U.S. labor force are dim.

Men have been withdrawing from the workforce for five decades.  No one is sure why. But we do know that prospects for robust growth and shared prosperity are dim unless we can devise more effective labor-market policies

Source:  William Galston, "The Incredible Shrinking Workforce," Wall Street Journal, October 29. 2013

 

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