Despite dramatic job growth over the past 22 months, the U.S. labor force participation rate is still 1.1 percentage points – or about 1.8 million people – lower than it was on the eve of the pandemic in February 2020.
The labor force participation rate is the number of Americans 16 and older who are employed or actively seeking one, divided by the population 16 and older. Uniformed military personnel and those incarcerated in prisons and other institutions are excluded from both sides of the equation. The fact that turnout is still so much lower, even as the unemployment rate is approaching pre-pandemic levels – it was 3.8% in February, down from 3.5% at the start of 2020 – is both an explanation of some of the strange things happening in the labor market today and a phenomenon that itself calls for an explanation.
Part of what’s happening is simply that Americans are getting older, with the oldest members of the giant baby boomer cohort turning 76 this year. Economists Jason Furman and Wilson Powell III estimate that 0.3 percentage points of the decline in labor force participation since February 2020 can be attributed to the aging population since then.
That still leaves a 0.8 percentage point gap, and there are some interesting shifts within age groups that may help explain it. Since the Bureau of Labor Statistics does not adjust all of its age figures for seasonal factors, comparisons that mix months can be misleading, so the February employment figures released the week latest offer a good opportunity to reflect on what has changed since just before the pandemic in February 2020.
The general trend is for lower losses among those who are in their best career years and higher losses for those closer to the start and end. The 45-54 year olds are a big exception, and I admit right away that I don’t know what’s going on there. The group’s decline in labor force participation has been concentrated in ages 45 to 49, has affected men and women equally, and does not appear to be related to demographic adjustments that the Bureau of Labor Statistics has made. in January to incorporate the results of the US 2020 Census (i.e. there was no big drop from December to January. Maybe it’s a fluke, maybe- be not.
The decline in participation among people aged 65 and over is no accident, and much has already been written about them. A pandemic that was most dangerous for older people, coupled with a spike in asset prices that has been favorable to those with retirement savings and home equity, has driven many Americans 65 and older who were still working to retire.
Some of these people won’t retire if the threat of COVID-19 continues to recede and the labor market continues to thrive, but the hit to labor force participation among 65-74 year olds has been so significant. that it is difficult to see the gap closing quickly. People in their late 50s and early 60s are the least likely to drop out of the labor force of any age group, so the best hope may just be to wait until they – or should I tell us, since this is my cohort – moving into their late 60s and early 60s.
Which leaves the young.
The sharp increase in labor force participation among 16- and 17-year-olds comes after decades of decline and aligns well with anecdotal evidence of desperate employers taking risks on inexperienced teenagers and these teenagers being rationally less worried than adults in to catch COVID -19 at work. The sharp decline among 18 and 19 year olds is odd and doesn’t really line up with other evidence such as declining enrollment in two-year colleges. The BLS seasonally adjusts turnout rates for these two groups, as well as for 20- to 24-year-olds, so it’s possible to visualize their trajectories during the pandemic. The 18-19 line has certainly jumped a lot, so I wouldn’t read too much into the recent decline.
Labor force participation among 20 to 24 year olds followed a more stable line. It has increased but remains well below the pre-pandemic rate. Explaining this, and the smaller but still significant decline in turnout among people in their late 20s and early 30s, has become something of a cottage industry over the past year.
Much of the conversation has centered on a supposed shift in attitude toward work variously described as the “big quit” or the “lying flat,” but hard evidence for this is mostly lacking. Goldman Sachs economist Joseph Briggs simply offered a graph showing growing activity on the r/Antiwork subreddit, for example. And while there’s plenty of evidence that childcare issues during the pandemic have kept many women out of work, women in their early 20s are much less likely to have children than they are. were before.
My own theory based on little evidence is that the pandemic, and in particular the total shutdown in spring and summer 2020, has been so disruptive to young people finishing school and entering the workforce that it takes a long time to catch up. Figuring out your initial career path isn’t easy in normal times, and having that path completely blocked for several months must have an impact.
I tried this explanation on a few business economists in the job search field and found some agreement. “It was a forced gap year, basically,” said Nick Bunker, director of economic research at the Indeed Hiring Lab. “Things were so uncertain. There was mass unemployment in jobs that didn’t require a college degree.” Daniel Zhao, senior economist at Glassdoor Economic Research, pointed to the sharp increase in median wages for 16- to 24-year-olds (10.6% in the 12 months ending January, according to the Atlanta Fed Wage Growth Tracker) as an indication of the times of shortages of young workers and, more positively, “some scarring effects of the Covid recession being avoided for new young workers entering the labor market”.
Graduating in the midst of past recessions has had negative effects on earnings that persist for up to a decade. The rebound from the COVID-19 recession has been so rapid that this long-term scarring may be avoidable — but it’s still a risk for hundreds of thousands of young Americans who haven’t yet found a path. towards the labor market.
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