The November jobs report released by the Bureau of Labor Statistics on Friday was largely encouraging due to higher-than-expected job gains, but unfortunately, the labor force participation rate held at the historically low 62.8 percent.
The labor force participation rate measures what portion of Americans are either working or trying to find work. Students, for instance, are considered to be not participating in the labor force.
In 1978, approximately half of American women were part of the labor force. By the time female labor force participation peaked at just over 60 percent in 2000, the overall labor force participation rate had grown to 67.3 percent.
Some argue that overall labor force participation is falling because Baby Boomers are retiring. However, data give little evidence to support this claim. Since December 2007, the labor force participation rate for ages 55 and older has actually risen by 1.2 percentage points. Meanwhile, the labor force participation rate for ages 25 to 54 has fallen by 2.2 percentage points. The 25 to 54 age group has 45 million more people in it, so its labor force participation decline has a significant impact.
Labor economist James Sherk, with the conservative Heritage Foundation, found that less than one-quarter of the labor force decline should be attributed to demographic changes, such as aging or increased schooling. Sherk said the decline is equally attributable to more participation in the Social Security Disability Insurance program and more people enrolled in school.
Those who are enrolled in school are likely to find jobs in the near future, but the same is not true for those enrolled in the Social Security Disability Insurance program. “Six percent of the adult population is on S.S.D.I. It’s over 11 percent of adults without a high school degree,” Sherk told the Washington Examiner. “A lot of people in the system are there, and ought to be there, and that’s why the program is there.”
Still, as with most government programs, there are people signed up for benefits who do not truly need them. Many people fell on hard times during the recession, had enough of a claim to get benefits, and will never leave the system. “They are, statistically speaking, much more likely to die than they are to ever find work again,” Sherk told the Examiner. Sherk’s research notes Social Security Administration figures that show less than 9 percent of Disability Insurance recipients leave the program to work.
On the other end of the ideological spectrum, Michael Madowitz of the Center for American Progress looks toward the Federal Reserve to reverse the decline in labor force participation. “The 25 to 54 labor force participation rate is one of the clearest signals I can think of that monetary policy needs to stay neutral until we see genuine signs of inflation,” Madowitz told the Examiner. “Given the slack still in the labor market at today’s unemployment rate, being too hawkish on inflation would put much more future growth at risk than usual.”
The economy needs workers to support it. It will be difficult to get the economy to fully recover with so many people in their prime working years living off government benefits or too discouraged to look for work. Government needs to reform the incentives to working until labor force participation rises.
