Labor Force Loss

While the unemployment rate is 5.1% and has fallen smartly since peaking at 10% in October 2009, a key question is why? Part of the decline is due to people finding work who were previously unemployed, however part of the decline is from people dropping out of the labor force. To this end, there are 92 million Americans who are currently not part of the labor force. But that number includes, among others, retirees, students, and stay-at-home parents, groups that by necessity don’t work and are thus not part of the labor force. That said, realistically how many Americans are not in the labor force, and more importantly, is the problem getting worse?

First, the population of the US is roughly 319 million. Of that number, about 65 million are under 16 and are excluded from employment data for obvious reasons. That leaves roughly 255 million Americans who are over 16. However, that number includes 43 million Americans over 66, the age at which full Social Security benefits are available. Excluding such persons, even though some are employed, leaves 212 million people between 16 and 66.

Of the 21 million between ages 16 and 20, 54% are in school, and one-third are in the labor force, meaning they are working or actively looking for work. And of the 23 million persons between 21 and 25, 73% are in the labor force and 13% are in school. Thus, between the ages of 16 and 25, 6 million people neither work nor attend school. For these ages, this is the number of persons who are really not part of the labor force.

Of the 105 million persons between the ages of 26 and 50, 82% work, 8% care for a family member, which is not surprising given the number of school-age children and aging parents, 2% attend school, while 6% are either on disability or would like employment but are not seeking it out. Of the 62 million persons between 51 and 66, two-thirds work, 16% are retired and 12% are disabled, with the remaining 6% split between those wanting but not looking for a job and those caring for a family member. Thus, between the ages of 26 and 66, there are 20 million persons not working, not caring for a family member, not in school, and not retired, the number effectively not in the labor force.

So compared to decades ago are things better or worse? It depends. Compared to 1999, when labor force participation rates were at their all-time high, several things are apparent. First, back then Baby Boomers were in their prime working years, today they are in their 50s and 60s and rapidly retiring. Second, the percentage of full-time students has risen for every age category. Third, the percentage that are disabled and fourth, the percentage wanting a job but not looking for one have both risen across all age categories. It’s these last two categories that are of concern.

In conclusion, the “real” number of Americans not in the labor force is at most 26 million, not the 92 million number that is widely cited, because many of those individuals are in school, caring for a family member, or as increasingly is the case, have retired. That said, the increase in the percentage of discouraged workers, those on disability, those in school, and those that are retired has risen by about five percentage points since 1999, thereby reducing both the labor force participation rate and the unemployment rate.

 

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net.

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