Why People Might Pull Back from the Job Market
Back in
early summer we expressed concern that fewer people are participating in the labor market –
fewer people are working or actively hunting for work, relative to the size of
the population – than has been the case for more than 35 years. Five years after the presumed end of a
massive recession, this fact surprised us and we promised to look more into
what might be going on. Shouldn't more people
be more anxious to work or to find work?
Instead, the so-called labor force participation rate stands at just 62.8%
of the population as of October, down from 65.7% in July 2009, the last month of the official
recession period.
To recap our
June comments a bit, we look at three different age groups, older people, teens
and middle-agers, each of whom has a distinct relationship to the labor market
that reduces its participation. First
and perhaps most straightforward, there are more and more older people, so
retirement is a bigger factor than it has been historically. Indeed, Federal Reserve economists have used
fairly simple arithmetic with Labor Department data to estimate that about
1.25% of the decline in the participation rate is due to the aging
population.[1] We could explore retirement
more, of course, but for our current discussion, this much about that group
will cover it. Second, teen-agers seem
to be less interested in getting a job than they were "when we were their
age". Our subsequent research has
turned up three reasons for this, which we will discuss momentarily. Finally, an increased share of middle-age
workers has been pulling back from the workforce. Since this group is obviously the most
important part of the working population, we want to know more.
Teens: School and Competition from Immigrants
For teenagers
and young adults, increased schooling looks to be the main force. Aaronson and her Federal Reserve colleagues,
whose study we just referenced about retirees, discuss teens as well, examining
the monthly employment data and the Labor Department's "American Time Use
Survey". They show that more young people are enrolled in school and for
those enrolled, school and extracurricular activities take more time every
day. You parents would be aware of this,
and the numbers show it to be so. They
estimate that school enrollment – including increased attendance in summer
school – and school time factors account for about three-quarters of the
decline in teen-age participation in recent years.[2]
There are
two likely and similar reasons for the remaining fall-off in teen-age work
interest. First, teens face heightened competition
from adults without college educations.
Due to changing technology, those adults face an increasingly
complicated job market. It turns out
that the kinds of work young people often do, such as food preparation, retail
sales and personal care, are now done by older workers more frequently than
before. We'll detail this issue when we
talk below about middle-agers. Second,
teens also face increasing competition from immigrant workers. Extensive statistical analysis shows that
teens have been more susceptible than adults to competition from the growing
numbers of immigrants who have no more than a high school education. These immigrants would have about the same amount
of work experience in the U.S. as do native-born teenagers.[3]
So
altogether, teens are spending more time in school, and they are meeting
greater competition for the kinds of jobs they often do; these factors are
discouraging more of them from even trying to find jobs.
Middle-Agers: Job Polarization a Growing
Obstacle
The group
that concerns us most are the middle-agers, whom labor market analysts refer to
as "prime-working-age" from 25 to 54. While 81%
of this huge group do work or actively seek work, that share has come down from
83% just before the recession. Our
research "googling" has turned up papers from other business
economists, Federal Reserve economists and even the Fed's Chair, which all
indicate that we are hardly the only people puzzled over this pull-back from
work. Even if 2 percentage points
doesn't look very dramatic, the growth of the economy as a whole and especially
the well-being of those very people who have pulled away can be hurt. What's been going on with those middle-agers? Can we tell something about why?
San
Francisco Federal Reserve economists Mary Daly and Elliot Marks argue that the
depth and severity of the recession have discouraged people but now that total
employment is finally back to pre-recession numbers and looking more vigorous,
those people might be expected to re-enter the labor force and seek jobs anew.[4] Indeed, the September and October employment
reports did look more favorable, extending a trend of quite decent job growth through
seven months and including upward revisions to the last three months' results. Daly and Marks seem to argue that this will
re-attract some "non-participants".
They further argue that, as such a trend might feed on itself, work will
become far more enticing than it has been over the last six or seven years. Separately, the latest several weeks' data on
new claims for unemployment insurance show that layoffs are holding at
eight-year lows, another favorable sign.
Other
writers are not so sanguine. A whole group
of studies has emerged describing a spreading phenomenon known as "job
polarization". This development
could well discourage a sizable group of people from even trying to find
work. You might be able to guess what it
means just from what you already see every day in the working world. At one end are high-level jobs in technology
and finance and business management. At
the other end are service jobs, such as those in restaurants and
hospitals. The middle range of factory
workers and office administrative positions is shrinking. Robots and other sophisticated machines do
increasing amounts of manufacturing assembly work, while the very computers you
and I use every day replace more and more secretaries, bookkeepers and the
like. So the mix of jobs – and incomes –
are more and more polarized: high-end jobs and low-end jobs predominate. This force plays into the income inequality
situation, as it seems to mean that energetic people who may not have advanced
educations might not be able to move up in the world as they have been in
recent decades. A whole "special
report" in a recent issue of The Economist puts this in fairly stark
terms and discusses its global reach, as it is hardly confined just to the US
and Europe.[5]
There's no
concrete proof that polarization is directly connected to people's withdrawal
from the labor force, but we can make one strong inference. The monthly employment survey asks people who
are "not in the labor force" if they would actually like to have a
job or if they don't want to work. For
the middle-aged population, the share who say they don't even want a job has
risen from 14% of that population in the late 1990s to 17% more recently. The share of that age group who would work if
they thought there was a good chance of getting a job has also risen, albeit marginally. Since this age group is much less subject to
retirement than older workers and is seen to face less impact than teens from
the influx of foreign workers, we can only believe that discouragement over the
increasing lack of opportunity is a major factor holding them back.
What Can We Do? Post-High School Training
So what can
be done about "job polarization" and about lower teen participation
in the workforce? Are we stuck in a new
economic quagmire? A full-blown answer
would take much more space than we have here, but we can offer a couple of
ideas.
The Labor
Department makes 10-year projections of the growth in various occupations and
categorizes them by the amount of education needed for entry.[6] The middle-range ones being hit by
polarization are typically filled by people with a high-school diploma. Sure enough, projections for those show
several office functions and various kinds of factory assembly work with
absolute declines over coming years.
Even with other jobs expanding, such as personal care assistants,
computer-controlled machine operators and customer service representatives,
total jobs for high school grads are seen as the slowest growing segment.
By contrast,
if people get just a bit more education, such as a vocational school or
community college, their prospects pick up sharply. That is, if they get training in some
technical skill or perhaps additional math background, more occupations with
greater prospective growth will be open to them and will enable them to move
ahead rather than languish. And, in
addition, make more money over their working lives.
Teach Soft Skills
Another word
we've seen in discussions of these issues is "employability". Specific job qualifications are obviously
important. But recently, prospective
employers report that they often meet candidates who don't have so-called
"soft skills".[7] While the
amount of education someone has may address the impact of job polarization, it
can be the soft-skill, employability issue that covers everyone and all jobs,
technical, advanced professional or low-end, this last sort the kind that
teenagers and immigrant laborers often compete for. Soft skills: do you dress properly, are you
on time, do you listen carefully to instructions and in turn do you ask
relevant questions to clarify and enhance your understanding, and perhaps most
seriously, can you pass a drug test.
Indeed, in a recent listing of the 10 most important skills employers
are known to desire in order to hire for some presumed popular jobs, the first
four are the soft ones.[8] Would you be
a responsible and attentive worker, whatever the job itself is about. These skills can be taught at home, in high
school and also in many workforce development programs run by local governments
and nonprofit organizations.
So training
focused for the workaday world is one big answer to our potential job and labor
market predicament. There are also social
factors, such as single-parent households, that contribute to trends in labor
force participation. And we haven't
mentioned lackluster wage gains. So
there is farther to go on these issues.
For the present, we do have the one approach of training, which can
help, and help a lot.
++++++++++
[1] Stephanie
Aaronson, et.al. "Labor Force Participation: Recent Developments and
Future Prospects". Paper prepared
for the Fall 2014 Brookings Panel on Economic Activity. September 2014. Page 23. http://www.brookings.edu/~/media/Projects/BPEA/Fall%202014/Fall2014BPEA_Aaronson_et_al.pdf
[2] Op. cit.,
page 26.
[3]
Christopher L. Smith. "The Impact
of Low-Skilled Immigration on the Youth Labor Market," Journal of Labor Economics. Vol. 30, No. 1, January 2012. Pp 55-89.
[4] Mary C.
Daly and Elliot M. Marks. "The
Labor Market in the Aftermath of the Great Recession," Business
Economics. Vol. 49, No. 3, July
2014. Pp. 149-155.
[5] Ryan
Avent. "The Third Great Wave,"
The
Economist. October 4, 2014. Special Report, pp. 3-18. http://www.economist.com/news/special-report/21621156-first-two-industrial-revolutions-inflicted-plenty-pain-ultimately-benefited.
[6] U.S.
Bureau of Labor Statistics.
"Employment Projections: Occupational employment, job
openings and worker characteristics." December 2013. http://www.bls.gov/emp/ep_table_107.htm. The table includes more than 800 occupational
categories, which we sorted by educational requirements.
[7] Dennis
Lockhart. "Strategic Workforce
Development: Training for Employability."
Keynote Remarks for Community Development Conference: Transforming U.S.
Workforce Development Policies for the 21st Century. Rutgers University, New Brunswick, New
Jersey, October 16, 2014.
Lockhart is
President and Chief Executive of the Federal Reserve Bank of Atlanta, a
co-sponsor of the conference. He
mentions three soft-skills training programs, Year-Up, STRIVE, and 12 for Life.
[8] Meghan
Casserly. "The 10 Skills That Will
Get You Hired in 2013," Forbes
website, December 10, 2012. http://www.forbes.com/sites/meghancasserly/2012/12/10/the-10-skills-that-will-get-you-a-job-in-2013/.
Also see
Rachel Burstein. "Here Are the
Crucial Job Skills Employers Are Really Looking For." Time.com website, August 29, 2014. http://time.com/author/rachel-burstein/.
Labels: Economy