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Why Is the Labor Force Shrinking? Blame Young Men, Not the Economy Why Is the Labor Force Shrinking? Blame Young Men, Not the Economy

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The Next America - Workforce 2012

WORKFORCE

Why Is the Labor Force Shrinking? Blame Young Men, Not the Economy

As the unemployment rate recovers faster than job creation does, there's been much consternation about the quality of the job market improvement. Yes, the unemployment rate has fallen to 7.8%, but how do we account for the following chart? As it shows, since the end of 2008 the labor force participation rate has fallen from 65.8% to 63.6%.

CHART 1.png
Aggregates can be misleading. For instance, that surge in the participation rate from the 1960's to 1980's is a result of women joining the workforce.
women (1).png
The male rate, on the other hand, has been declining since the 1950s.
men22.png
Male participation has fallen under President Obama. It fell under President George W. Bush. And President Clinton. It's fallen in every presidential administration going back to at least Eisenhower's, with the exception of Carter's, for whom it was flat.
Why are fewer men choosing to work? For that, we turn to the Census Bureau's 2012 Statistical Abstract. The participation rate is lower for single men than for married men, and marriage rates in the US have been falling for decades, so we'd expect a modest decline from that. Looking by age bucket, it's been pretty steady for single and married men for everyone over the age of 25 since the start of the Great Recession. 



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The recent decline we've seen has been primarily among young, single men. For single men age 16-19, participation fell by almost 9 points from 2006-2010. For single men age 20-24 it fell by almost 5 points. This could be for a variety of factors, from men deciding it's not worth bothering to apply for a job at the local grocery store, to men more focused on their education with unskilled work harder to find, to those living at home who decide there's no need for spending money when so much entertainment is free online.
Additionally, the acceleration in the labor force decline began when the oldest baby boomers began turning 60. Yes, because of deflated housing prices and retirement accounts, boomers will work longer than they thought. But 60-year olds still work less than 30-year olds, and that demographic shift is being reflected in the data.
What's more, this decline in the workforce is part of a century-long trend towards working less in the United States. Child labor laws were passed during the Great Depression, restricting child labor. During the Truman administration, the US government instituted the 40-hour work week for federal employees. The passage of Social Security and Medicare reduced incentives for seniors to work as well.

This is a good thing. Among his many writings, John Maynard Keynes talked about an eventual 15-hour work week to satisfy the material needs of citizens. We're progressing slower than he thought, but we're getting there.

But can fewer working young adults possibly be a good thing? It's intuitive that fewer workers means less work and a smaller and weaker economy. But since the decline is mostly among very young men (and, to a lesser extent, young women) we need to understand why they're dropping out.Student loan debt outstanding has grown from $360 billion to $900 billion over the past seven years. The size of this debt is daunting, but it shows that some of the labor force decline is due to young people investing more in their education, an eventual long-term positive. 

And those not dropping out for education-related reasons? If it's just a bunch of 17-year olds who are content spending their time on Facebook instead of earning a few bucks bagging groceries, that's one thing. But if it's people who feel shut out of the workforce, that's something policymakers should address.

 

These are issues we're going to have to grapple with, because with robotic labor on the horizon, our desire and ability to compete with emerging market and silicon-based labor, especially for less-educated Americans, is likely to continue to fall.

Conor Sen, a former hedge fund analyst, works for an Atlanta-based financial technology startup.



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