The Non-Mystery of a Smaller Labor Force

September 16, 2022

It is bizarre how the media keep insisting that we have some big problem of missing workers, since we don’t. The Washington Post has the latest entry in the search for non-missing workers.

As with other pieces, it implies that an unusual large percentage of people are opting not to be in the labor market. It tells readers:

“The share of working-age Americans who have a job or are looking for one is at 62.4 percent, a full percentage point lower than it was in February 2020, according to Labor Department data.”

This is not true. That figure refers to the share of the civilian non-institutionalized population that has a job or is looking for work. This includes everyone over age 16 who is not in the military, prison, or some other institution.

The population is two and half years older now than it was in February of 2020. This matters because the huge baby boom generation is now mostly in its sixties and seventies. It is hardly a secret, even to labor economists, that people who are age 66 and a half are less likely to be working than people who are 64.

If we control for age, there is very little evidence of people dropping out of the labor force. The labor force participation rate for prime age workers, people between the ages of 25 and 54, was 82.8 percent in August. This is just 0.2 percentage points below the level in February of 2020 and only below the rate for one month of 2019.

It is a bit far-fetched to see this falloff as a big problem to be explained. It is common for the labor force participation rate to move this much in a single month.

The piece also tells us the big issue is with older workers:

“It’s unclear whether — or when — many of the people who left the workforce during the pandemic will return. That’s particularly true for workers 55 and older, who have stopped working at higher rates. The job market is still short more than 500,000 workers from that age group.”

As noted, this group is close to two and half years older than it was two and a half years ago. It is surprising that anyone would be surprised that a smaller share of them is working. If we hold age constant, the Post’s mystery disappears.

In February of 2020 the labor force participation rate for people between the ages of 55 and 64 was 65.5 percent, the same as the rate in February and March of this year. The rate has fallen by a percentage point in the last five months, but this is likely just error in the data. In short, there is nothing here either.

The problem we are seeing is an extraordinary restructuring of the labor market due to the pandemic. Many businesses will not survive (welcome to capitalism). With luck, we will end up with a situation where employers will be forced to offer higher pay and better conditions to attract and keep workers. That is not a bad story.



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