Why Are Men of Prime Age Missing from the Labor Force?

SPECIAL REPORT 7  October 2013 [slightly edited 10/18–note that prime-age men’s LFP, first graph, and that of black men alone, second graph, rose with recovery, though they have not yet returned to pre-crisis levels.] For a recent look, see https://conversableeconomist.blogspot.com/2018/10/why-is-labor-force-participation.html]

by June Zaccone, Assoc. Prof. of Economics (Emerita), Hofstra University and NJFAC Executive Committee

The official unemployment rate fails to reveal the full social burden that our slow recovery imposes on workers and on our economy as well. This limitation is created by the disappearance of millions of workers from the measure, which includes only those not working but looking for work in the previous month. The rate understates the level of unemployment because of the shrinkage of the labor force participation rate [LFPR], the fraction of the civilian non-institutional population that is either working or looking for work. Those who are no longer looking, among them, discouraged workers, are not counted in the labor force. EPI estimated that in January 2014, 1.6 million men age 25-54 were missing from the labor force. These would have been working except for the recession.

“Certainly there’s no shortage of supply; demand is the issue,” said Bloomberg’s Scarlet Fu about the current low participation rate of prime-age men. The National Jobs for All Coalition agrees: we believe that almost all people of working age [with the exception of some people in school] want to work. So when there is a precipitous decline in the participation rate, we look for reasons beyond “unwillingness to work” or “generous unemployment benefits.” We’d like to know how many of these “dropouts” are really discouraged workers who have despaired of finding work.

What has happened to the LFPR of men is partly a consequence of changes in the job market which have undermined their standard of living, though it is not possible to determine how significant those changes are to that decline.

While unemployment is an ordeal for anyone, it still appears to be more traumatic for men. Men without jobs are more likely to commit crimes and go to prison. They are less likely to wed, more likely to divorce, and more likely to father a child out of wedlock. Ironically, unemployed men tend to do even less housework than men with jobs and often retreat from family life…

The longer people who are currently unemployed remain out of work, the more their skills will atrophy and the greater the risk of a cohort of men–and women–who become permanently detached from the workplace. Anything that raises employment overall would help.

From close to 98% in early 1950’s, the LFPR for men in their prime work years [25-54] had plummeted to 88.7% in March 2015.*

LABOR FORCE PARTICIPATION RATE, MEN 25-54, 1959-2018

The situation of prime-age black men is even worse [see below]. Starting at about 90% in 1972, when reporting of these data began, down to 89% in 1979, then 87.5 in 1990. The rate slipped below 84% in 2001 and slid precipitously from 2009, ending in August 2013 at 80.6%, also close to a postwar minimum. It is telling that the rate rose for both men of all races and black men in the late 1990’s, when jobs were relatively plentiful.

Labor Force Participation Rate of Black Men 25-54 [NSA] 83.0 in 9/18

 

 

 

 

 

 

 

 

[Data availability for prime-age black men began in 1972.]

AUTHOR’S NOTE: I am dissatisfied with the data available to find out why prime-age men have dropped out of the labor force. The hypothesis I’d like to test is that the major reason is the lack of decent jobs. However, this would require an accurate count of discouraged workers, which we don’t have. Extensive periods of high unemployment lead to high numbers of discouraged workers, who are excluded from both official unemployment rates and the LFPR. Further, getting a count to add them back in may be impossible. For example, the current measure of discouraged workers includes only those who have looked for work within the last year, not those who have been out of the job market for longer than that.[1] Many former prisoners, disproportionately high-school dropouts, would be among them, a larger group after the rising wave of incarceration, which has only recently peaked. This undercount is especially significant for black workers who have been most affected by the war on drugs, as ex-prisoners have difficulty finding employment.[2]

Even worse, some of the early retirement is likely to be related to work discouragement, as is returning to school, applying for disability payments, perhaps even exiting for home care. How can we ever know how many people want jobs until we are committed to providing a job for everyone who wants one, and assisting those who need transportation, child care, or a work place that accommodates a disability? The National Commission on Employment and Unemployment (1979) decided against including discouraged workers in the official unemployment count, on the grounds that “during the upswing…, when opportunities for work increase, many nonparticipants who are not classified as discouraged workers also enter the labor force.” In fact, as the Chairman of another commission on labor policy noted, whenever there are plenty of good jobs available, “millions of people come out of the woodwork” to take them.[3] The following analysis is necessarily based on these problematic data.

JOB AVAILABILITY

Looking at the trajectory of the LFPR above provides some support for the effect of changing job availability. The rate started sinking in the early 1960’s, but the slide accelerated in the 1970’s. What began at 96.0% in January 1970 was by December of 1979, 94.3. Further declines in the 1980’s and 1990’s ended below 90% in December 2008, with the ongoing recession, at least for job-seekers. Researchers at the Federal Reserve Board conclude that “analysis of state-level employment data indicates that cyclical factors[that is, unemployment] can fully account for the post-2007 decline of 2 percentage points in the LFPR for prime-age adults (that is, 25 to 54 years old).” However, their conclusion differs for its long-term secular decline.[4]

The sharp change in the unemployment rate for prime-age men in the recessions of 1973-5, 1981-2, and 2007-9 must have been a special shock [second chart].

UNEMPLOYMENT RATE, MEN 25-54 1959-2016

UnemM25-54.png
Chart below shows change in the unemployment rate for prime-age men:

U25-54

Per Cent of Men 25-54 with Jobs

lfpM25-54.jpg
Job availability is limited, especially for those without college degrees. However, though some jobs require college training, many college graduates are doing jobs that could be done by those with less training. This bumping occurs when jobs are in short supply. The pre-crisis expansion of 2000-2007 was accompanied by the weakest job expansion in decades.

This is not the inevitable result of globalization and technology. It is the economic failure of public and private sectors to create enough spending to put the available labor force to work .

Jared Bernstein depicts this failure:

prod-jobs

He notes, “since the 2000s, when the split in last graph begins, the U.S. economy simply hasn’t been creating enough demand to absorb productivity’s growth. That been particularly acute and evident in the recession, of course, but it predates the downturn, especially, though not exclusively, for prime-age men.” Two MIT professors attribute this disparity to the job-destroying effects of advances in computer technology “in law, financial services, education, and medicine.” This may be true, but whether we have full employment is a political decision. There are still many tasks to be done, and should we ever run out of these, we can take earlier retirement or longer vacations or work shorter hours. The US still has an unenviable record as the major industrial country with the longest average annual work hours in 2016, longer than the UK, Australia or Japan, not to mention Scandinavia, and above the OECD average, which includes Estonia, Mexico, Turkey and other poorer countries.

Josh Blivens concludes, “We noted a long time ago that policymakers seemed to have largely given up on presenting actual solutions to the jobs-crisis. 2013, however, is the first year that federal policymakers have succeeded in setting policy to actively make it worse, and stomping on some of the first promising trends in years.”

OTHER REASONS FOR THE DECLINE–retirement, disability, home responsibilities, education, and other

RETIREMENT

THE GOOD NEWS Some of those men who can’t get work retire. In 2012, about 8% [see graph below] of men 25-54 who left the labor force retired. These men are unlikely to return when employment improves. Many men who lose jobs in their 50’s can’t find another, and are forced to retire. However, a very small share of this labor force decline is a good sign, one that indicates that for some few men, there is a financial possibility of withdrawing from the labor force before old age. Some workers with a 30-year work life might have started at 18 and be eligible for retirement benefits when they are about 50 years old.

This choice is unlikely for the majority of those who have withdrawn, and will become even less likely as younger workers lose the right to employer-provided pensions, especially those that provide a defined-benefit.

Since 1967, the BLS, through the Current Population Survey, has asked those who are not in labor force the reason for their absence. Researchers, using these data, examined the responses of only those who were employed or unemployed the previous year, and so more likely to return.

leaving-men25-54

Source: A Closer Look at Nonparticipants During and After the Great Recession, by Julie L. Hotchkiss, M. Melinda Pitts and Fernando Rios-Avila. Working paper 2012-10, 8/12, Federal Reserve Bank of Atlanta.

Illness and Disability

“Labor force participation among prime-age men has fallen for two main reasons: increased access to Social Security disability benefits and decreased demand for less-skilled workers.” These are related. As the relative wages of high school dropouts have declined, disability benefits have replaced a larger fraction of earned income. [5] We’ll see that this can be debated.

Probably a majority of researchers attribute the secular decline of the prime male LFPR in part to the availability of Social Security Disability Insurance. “Expansions in the…program account for a substantial portion of that decline, because most individuals who start receiving disability benefits never reenter the labor force; increased incarceration rates also appear to have played a significant role. However, those trends appear to have subsided over the half-decade prior to the Great Recession….”

The graph above includes only men 25-54. Unfortunately, it is much harder to read than the one for all workers of that age, show below under Other.

Some of the evidence used to point to the role of Disability Insurance is interviews with those who have left the labor force, as noted above. A plurality of men age 25 to 54 who left the labor force over the last 15 years said they did so because they were ill or disabled [[about 30% recently: top line of graph]. Autor and Duggan point to two changes which encouraged this move: in 1984, the disability determination was liberalized to cover depression and severe pain, reversing a major reduction in numbers on disability. The second occurred because of a rising replacement rate: disability benefits are both progressive and indexed to the mean wage. Over the next decades, the ratio of disability payments to wages rose as the pay and job prospects of unskilled workers deteriorated. The disability program also includes Medicare.

Others disagree. “Some of the youngest and least skilled groups have seen increases in receipt [of disability insurance], but the magnitudes are tiny compared with the declines in the employment-population ratio… “. [6] Or, “after the mid-1990s, we find little role for the DI program in explaining the continuing employment decline for men with work limitations.”

Other analysis “suggests that other factors were behind that decline in participation, and that the growth in D[isability] I[nsurance] rolls experienced in the 1990s was made up of men who would not have been working regardless of the DI expansion.”

It is also evident that this rate rose with the recession and has fallen since, as the job market slightly improved. Research has shown the relevance of job availability: “The largest declines [in the LFPR] have occurred in states with the largest job losses. …during the downturn and recovery periods of the recessions of 1981-82, 1990-91, 2001, and 2007-09.”

Household Care[graph above]

Though workers with family members who are sick or otherwise need care face a limited set of options in the US, it is good news that men are taking on this role in greater numbers [above, third line up]–rising from 16% of those leaving the labor force in the late 1990’s to about 22% at the end of 2011. Women continue to have the major burden. This category for both men and women [the orange line in the graph below, right-hand axis] included about 47% of all those leaving the labor force in 2011.

Back to School [graph above]

Roughly 17-18% of prime-age men who left the labor force returned to school [graph above, second line up from bottom]. Though the upward shift after the recession was most pronounced for those with some college or a degree, the shift occurred at all levels of education. Presumably these men plan to return to work once they finish schooling and/or find a job.

Other [graph above]

About 22% left for a variety of reasons. They are in the BLS category of “not in the labor force/currently wants a job.” This would include those who lack transportation, child care, or an undefined reason, “although this category may be capturing some of the discouraged workers… In April 2012, these people accounted for only 1.1 percent of all nonparticipants (41 percent of the marginally attached–those who want a job, are available to work, and searched in the previous year)”

The following chart is for both men and women 25 to 54.

Shaded areas are periods of recession; the right-hand axis measures the category of those leaving to care for members of their household.

Labor force nonparticipants: So what are they doing?

leftshare25-54.gif

NOTES

*”Conventional economic theory posits that more ‘flexible’ labor markets—where it is easier to hire and fire workers—facilitate matches between employers and individuals who want to work. Yet despite having among the most flexible labor markets in the OECD—with low levels of labor market regulation and employment protections, a low minimum cost of labor, and low rates of collective bargaining coverage—the United States has one of the lowest prime-age male labor force participation rates of OECD member countries.” White House, CEA, 6/16, 4

[1] “In 1994, the BLS changed the way in which it counts ‘discouraged’ workers…..  If one is unemployed for more than 52 weeks, even if one continues to look for employment, one is dropped from the labor force.” “Between one and two million jobless workers who gave up their job search after twelve months of frustration are no longer counted in official figures.”

[2] “At 2001 rates, 6.6% of the population and 17% of men will be incarcerated in State or Federal prison during their lives…” “Incarceration disproportionatly affects males under 35, African Americans, and the low educated.” “…the share of white male school dropouts who had ever been incarcerated rose from 14.4 percent in 1999 to 28.0 percent in 2009; the rate for black male dropouts rose from 46 percent to 68 percent.” Moffitt, “The Reversal of the Employment-Population Ratio in the 2000s: Facts and Explanations,” https://www.brookings.edu/wp-content/uploads/2012/09/2012b_Moffitt.pdf

[3] Helen Ginsburg, Full Employment and Public Policy: the US and Sweden, Lexington Books, 1983, pp.30-31. She quotes from A.H.Raskin, NY Times, 2/15/76:

[4] “Expansions in the Social Security Disability Insurance program account for a substantial portion of that decline [of the prime-male LFPR from 1940’s to the 2000’s], because most individuals who start receiving disability benefits never reenter the labor force; increased incarceration rates also appear to have played a significant role. However, those trends appear to have subsided over the half-decade prior to the Great Recession; that is, the LFPR for prime-age males was stable at around 90.5 percent from 2003 to 2007.” http://www.bostonfed.org/employment2013/papers/Erceg_Levin_Session1.pdf

[5] “Many prime-age men who leave the labor force during downturns stay out even after the economy recovers, although not to the same extent as teenagers. The weak cyclical recoveries of the labor force participation rate of prime-age men are related to a secular decline.”

[6]

pop-disab

em-pop

See also https://www.whitehouse.gov/sites/default/files/page/files/20160620_cea_primeage_male_lfp.pdf