Recent Research: Exploring where the workers have gone

An earlier SSTI analysis detailed the Bureau of Labor Statistics labor force participation projections, revealing a continuing downward trend in the number of workers despite a growing population. Additional research papers released in February from economists at the University of Maryland as well as the Kansas City Federal Reserve Bank explores the reasons behind the trend, finding that trade and robots have had a significant impact, and suggests that some prime-age workers may not be coming back.

In a working paper published in the National Bureau of Economic Research, Katharine G. Abraham and Melissa S. Kearney review evidence regarding the role of various factors to try to explain the falling employment rate among prime-age U.S. adults over the period 1999 to 2016. During that period, the overall employment-to-population ratio for those 16 and over fell by 4.5 percentage points.

Based on their survey of the existing literature, the economists provide a ranking of the likely factors contributing to the declining numbers. They conclude that labor demand factors are the largest contributing factors to the decline, especially the effects of trade (which they say potentially accounts for a 1.04 percentage point decline in the ratio), followed by the penetration of robots into the labor market (0.55 percentage points to this factor). They contend that labor supply factors such as increased participation in disability insurance programs have played a less important, but not inconsequential role, while increases in the minimum wage and in the share of individuals with prison records also have contributed to the decline.

Abraham and Kearney go on to look at other factors, which they call “potentially important,” but say the evidence surrounding these factors is too early to draw any clear conclusion. These include improvements in leisure technology (gaming technology in particular), changing social norms, increased drug use, growth in occupational licensing, and costs and challenges associated with child care.

While increased immigration is sometimes mentioned as a contributing factor to the decline in the employment-to-population ratio, after their review of the available evidence, the authors found that immigration has little overall effect on native wages or employment, especially over the long run.

The net change in the overall employment-to-population ratio includes both negative and positive influences, and the authors point out that increases in employment rates among those age 55 and older raised overall employment rates by 29.6 percent of the net overall decline. When looking at within-age-group employment rates, the authors found that decreases in the employment rate for those age 16 to 54 accounted for 80.8 percent of the net overall decline in the employment-to-population ratio between 1999 and 2016 (a 3.6 percentage point drop).

In a separate study, the Federal Reserve Bank of Kansas City examined a specific segment of the population and the likelihood that they may return to the workforce. The report, Why Are Prime-Age Men Vanishing from the Labor Force? by Didem Tuzemen, notes that the decline has accelerated. In 1996, 4.6 million prime-age men (age 25 to 54) did not participate in the labor force; by 2016, the figure was 7.1 million. Tuzeman notes that “a decline in their participation has important implications for the future of the labor market and economic growth,” and she breaks down her analysis by different ages, education and skill levels.

She found that for the years studied (1996-2016), the nonparticipation rate increased most for men obtaining only a high school degree, some college, or an associate’s degree, and for men on the younger end of the range (age 25-34). The most common personal situation reported among the men was disability or illness.

Tuzemen argues that job polarization, which she describes as a declining demand for middle-skill workers in response to advancements in technology and globalization, has been a key contributor to the decline in participation rate, and she maintains that survey evidence suggests these men are unlikely to return to the labor force if current conditions hold.