The labor-force-participation rate ticked up by 0.2 percentage points in January, but the steady downward trend of the last few years has been worrying for many observers, as AEI’s Aparna Mathur recently explained. Why the rate of Americans working or looking for work is a tricky question though — how much is due to the economy, and how much is due to the gradual aging of the American labor force.
One helpful insight would be looking at the participation rates for various groups — and that’s what Mathur did. A tidbit:
In January 2014, the participation rate for all Whites was 63.3 percent. Now it’s down marginally to 63.2 percent. For White men (20 and over), the rate has gone down by 0.2 percentage points to 72.4 from 72.6. For women, the drop has been slightly larger, from 58.2 percent to 57.9 percent. For all Blacks, the participation rate has in fact trended up, increasing from 60.7 percent at this point last year to 61 percent. However, this increase stems from more Black men joining the labor force, while Black women have actually been dropping out. Black women’s participation rate has dropped from 61.6 percent to 61.3 percent. Increases for Black men coupled with decreases for White men meant the overall participation rate for men has remained unchanged at 72.1 percent. However, the participation rate for women has fallen to 56.8 percent.
She has a chart in her piece showing the trend for women and for men.
How about income levels? Last month, economists Robert Hall and Nicolas Petrosky-Nadeau presented evidence that, contrary to common belief, the decline in labor-force participation since the 1990s has been concentrated among affluent, not poor, families. This paper triggered a significant debate, because, as Heritage’s Salim Furth notes, the debate mostly stemmed from the fact that “other studies have found trends going in the opposite direction: The more affluent were working more and the less affluent working less.”
As a result, he decided to run the numbers himself. His results can be found in this paper called “Who Is Working Less?” and are consistent with previous research and contrary to Hall and Petrosky-Nadeau. Here’s how he summarizes his findings.
To facilitate discussion, my colleagues and I replicated the chart Mr. Hall published in his testimony–except that we used data from the Current Population Survey instead of the SIPP. As shown above, we found different results, especially for 35-to-59-year-olds.
From Current Population Survey data, we found very little change in labor-force participation among men and women ages 35 to 59 making more than they median income. But both men and women in families with below-median income decreased their participation by three percentage points. Among teenagers, we found only slight differences between those in below- and above-median-income families. Altogether, our analysis finds the reverse of Mr. Hall and Mr. Petrosky-Nadeau: The decline in labor-force participation is concentrated in families making less than the median income.
As Furth notes, the discrepancy can be explained by the source of Hall and Petrosky-Nadeau’s surprising statements; the Survey of Income and Program Participation (SIPP). While he has some issue with the data source used by Hall and his co-author, he also finds a redeeming quality to the exercise:
One issue with the approach Mr. Hall and Mr. Petrosky-Nadeau take is that participation and income are not at all independent. All else being equal, those who work less earn less. But their approach may prove useful for understanding differences between the Survey of Income and Program Participation and the Current Population Survey.
The whole thing is here, and Furth’s paper is here.
Now, whether we should really be concerned with these trends is debatable. Manhattan Institute’s Scott Winship had an excellent piece a few weeks ago on the issue. Whether we should worry about the trend depends on the following, he argues:
If all the men uninterested in work were students, early retirees, or filthy rich, we would celebrate the decline in male labor-force participation as an indicator of rising prosperity. If it instead reflected an increase in non-working men who were unengaged in productive activity and reliant on safety-net programs, that would be cause for concern.
He finds evidence that labor-force participation among men has been declining as disability claims have gone up. The whole thing is a must-read, but especially read this:
We can also use the March CPS to see how the increase in men reporting disabilities is related to the decline in working-age-male labor-force participation. I estimate that the rise in disability accounted for about 35 percent of the decline. That was over twice the fraction of the decline accounted for by increases in the shares of men who keep house and take care of a family, who go to school, or who are retired, which each explained about 15 percent of the decline. (Various other reasons for being out of the labor force accounted for the remainder of the drop.)
Richard Burkhauser and Mary Daly, of Cornell University and the Federal Reserve Bank of San Francisco, respectively, have shown that a rising share of adults are receiving federal disability payments, from either SSDI or SSI. This increase in the disability rolls has not corresponded to a deterioration in health status. Rather, Burkhauser and Daly show how legislative and administrative changes have made it easier to qualify for benefits, while incentives for employers to accommodate employees with work limitations rather than pointing them to federal disability programs have remained low.
To be sure, the growth of disability rolls may reflect weak demand for workers with limited skills. But this possibility ignores the fact that, as shown above, falling labor-force participation among men results nearly entirely from an increase in those who say they do not want a job.
As it turns out, the SSDI trust fund will be empty in 2016, so Congress has to think about reforms, anyway. Winship’s findings are important to keep in mind.