The Clearest Trend in the American Workforce Is Not an Encouraging One

by Andrew McAfee on August 14, 2014

It’s been a while since I posted data on US employment trends, so here’s a chart created with FRED’s snazzy new graphing interface. It shows the employment rate (in other words, 100 – the standard unemployment rate) in blue, the employment-to-population ratio (the % of working-age people with work) in green, and the labor force participation rate (the percent of working-age people who have work or are actively looking for it) in red.

fredgraph1

This graph clearly shows a very steady up-then-down trajectory in the red line — of the labor force participation rate. It’s affected very little by recessions (the gray bars in the graph), and instead appears to be responding to deeper forces.

The most obvious of these forces are the demographics of the American labor force. Labor force participation went up a lot in the last two decades of the 20th century largely because women entered the workforce in large numbers. It’s pretty clear that one of the reasons it’s going down now is that lots of baby boomers are retiring.

So is retirement the main reason that the red line is going down these days? There’s a lot of debate and discussion on this topic, nicely summarized in this WaPo Wonkblog post by Brad Plumer, and not much agreement. One study estimated that retirement accounts for about 25% of the drop in the labor force participation rate since the recession’s end, while another says that it’s more than 50%.

I’m more persuaded by the lower figure. As Plumer points out, for example, the participation rate for workers 25-54 years old has been declining steadily in the new century, and these folk are clearly not retiring yet:

EmployPop2554Aug

Also, disability claims started spiking right around the year 2000, and have almost doubled since then:

disability-applications

So it feels to me like something else is going on, in addition to the graying of the US workforce — some other forces that are causing more and more people in recent years to go to school, stay in school, go on disability, get discouraged and stop jobhunting, stay home to raise kids or take care of a sick or elderly loved one, or do any of the other things that means they’re no longer categorized as ‘working or looking for work.’

As I’ve argued many times, here and (with Erik Brynjolfsson) in The Second Machine AgeI believe progress in all things digital is one of these forces, and one that will only become more powerful over time. The evidence is pretty clear that tech progress has been hollowing out the middle class for a while now, and has recently started to affect an even broader set of workers. As computers, software, and robots can do more and more we need some kinds of workers less and less. This is something that would cause more people over time to stop participating in the workforce, and so make the red line up top continue to trend downward over time even if the blue one heads up.

It would be great if the red line reversed its course in the coming months, but I don’t see that happening. Do you?

  • Gary Mintchell

    Sometimes I wonder if there is an “underground” cash economy happening. Maybe aided by using technology to work from home?

    Or, if we are going back to a single-income family structure. I’ve observed some, but I have not seen studies. The families that I know still are able to afford middle-class amenities such as large flat-screen TVs and other things thanks to Wal-mart and Costco.

    There are sectors, such as public school teachers and other public employees, where retirement at 30 years is common. And many are reaching that level. This means more jobs for younger people ramping up over the next few years.

    I live in small-town Ohio, so I see all social strata except the very wealthy. I’ve seen the high paying manufacturing jobs dwindling or at least the wages scaled back. Yet, there still seems to be a lot of cash in the economy around here. Where is it all coming from?

    I’m curious.

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