Report

The decline in prime-age male labor force participation in US – A White House report

For more than sixty years, the share of American men between the ages of 25 and 54, or “prime- age men,” in the labor force has been declining. This fall in the prime-age male labor force participation rate, from a peak of 98 percent in 1954 to 88 percent today, is particularly troubling since workers at this age are at their most productive; because of this, the long-run decline has outsized implications for individual well-being as well as for broader economic growth. A large body of evidence has linked joblessness to worse economic prospects in the future, lower overall well-being and happiness, and higher mortality, as well as negative consequences for families and communities.

This report documents the trend of declining prime-age male labor force participation over the last half century in both a historical and international context, examines a number of potential explanations, and discusses the policies President Obama has proposed to address it.

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Labor force participation among prime-age men peaked in 1954 and has fallen steadily since the mid-1960s, a trend that has been sharper in the United States than in other advanced economies.

  • Participation among prime-age men peaked in 1954, declined only slightly until the mid- 1960s, and then began to decline in earnest in the decade between 1965 and 1975. Since then, participation has fallen persistently, with sharper declines in recessionary periods that were not fully reversed in the subsequent expansions.
  • Since 1965, the prime-age male labor force participation rate has fallen by an average of 0.16 percentage point each year, totaling an 8.3 percentage-point decline as of May 2016.
  • The United States has had the second largest decrease in prime-age male participation among members of the Organisation for Economic Co-operation and Development (OECD) since 1990; today, the United States has the third lowest labor force participation rate in this group.

 

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The fall in participation for prime-age men has largely been concentrated among those with a high school degree or less, and participation rates have declined more steeply for black men.

  • Participation rates by educational attainment, previously quite similar, have diverged since the 1960s. In 1964, 98 percent of prime-age men with a college degree or more participated in the workforce, compared to 97 percent of men with a high school degree or less. In 2015, the rate for college-educated men had fallen slightly to 94 percent while the rate for men with a high school degree or less had plummeted to 83 percent.
  • Lower rates of labor force participation have affected all races and ethnicities, although participation has declined most steeply and remains lowest for prime-age black men.
  • Participation at nearly every age has fallen for nearly every consecutive cohort of men, meaning that falling participation among prime-age men is largely a function of lower participation at all ages rather than shocks at a particular age or for a particular birth cohort.

Reductions in labor supply—in other words, prime-age men choosing not to work for a given set of labor market conditions—explain relatively little of the long-run trend.

  • Less than a quarter of prime-age men who are not in the workforce have a working spouse, and that figure has actually decreased during the last 50 years.
  • The data suggest that public assistance can explain very little of the decline in labor force participation rates for prime-age men:
    • SocialSecurityDisabilityInsurance(SSDI)receipthasincreasedby2percentagepoints since 1967 compared to a 7.5 percentage-point decline in prime-age male labor force participation rates over that period. Moreover, not all of this increase in SSDI causally lowers participation. CEA analysis finds that increasing SSDI receipt can explain at most 0.5 percentage point of the decline over this period, under a counterfactual scenario that likely provides an upper-bound estimate.
    • Other government programs, such as Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP) have become increasingly hard to access for those out of work and especially those without children.

• Nearly 36 percent of prime-age men not in the labor force lived in poverty in 2014—casting doubt on the hypothesis that nonparticipation represents a choice enabled by other personal means or income sources.

In contrast, reductions in the demand for labor, especially for lower-skilled men, appear to be an important component of the decline in prime-age male labor force participation.

  • Participation has fallen particularly steeply for less-educated men at the same time as their wages have dropped relative to more-educated men, consistent with a decline in demand.
    • In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80 percent of the amount earned by workers with at least a college degree to less than 60 percent.
  • CEA analysis using State-level wage data suggests that when the returns to work for those at the bottom of the wage distribution are particularly low, more prime-age men choose not to participate in the labor force:
    • The correlation is strongest at the bottom of the wage distribution: at the 10th percentile, a $1,000 increase in annual wages, or a roughly $0.50 increase in hourly wages for a full-time, full-year worker, is associated with a 0.13 percentage-point increase in the State participation rate for prime-age men.
  • This reduction in demand, as reflected in lower wages, could reflect the broader evolution of technology, automation, and globalization in the U.S. economy.

Institutional factors also appear to be important—and may help explain some of the differences in the U.S. experience both over time and compared to other countries.

  • Conventional economic theory posits that more “flexible” labor markets—where it is easier to hire and fire workers—facilitate matches between employers and individuals who want to work. Yet despite having among the most flexible labor markets in the OECD—with low levels of labor market regulation and employment protections, a low minimum cost of labor, and low rates of collective bargaining coverage—the United States has one of the lowest prime- age male labor force participation rates of OECD member countries.
  • U.S. labor markets are much less “supportive” than those in other OECD countries. The United States spends 0.1 percent of GDP on so-called “active labor market policies” such as job- search assistance and job training that help keep unemployed workers connected to the labor force, much less than the OECD average of 0.6 percent of GDP, and less than nearly every other OECD country. The contrast in participation rates reveals a flaw in the standard view about the tradeoffs between flexibility and supportive labor policies.
  • Another unique feature of the U.S. experience has been the rapid rise in incarceration, especially affecting low-skilled men.
      • By one estimate, between 6 and 7 percent of the prime-age male population in 2008 was incarcerated at some point in their lives.
      • These men are substantially more likely to experience joblessness after they are released from prison and in many States are legally barred from a significant number of jobs.

A number of policies proposed by the Administration would help to boost prime-age male labor force participation. These include:

  • Supporting aggregate demand in the economy by creating new job opportunities for less- educated prime-age men, including increased investment in public infrastructure.
  • Increasing the “connective tissue” in labor markets via reforming community college and training systems to help place people into in-demand jobs; providing better search assistance as part of the Unemployment Insurance system; giving workers more flexibility to use Unemployment Insurance to integrate into a new job; and insuring workers against earnings losses.
  • Reforming the U.S. tax system to make participation in the workforce easier by reducing the effective tax penalty on secondary earners and expanding the Earned Income Tax Credit for individuals without qualifying children.
  • Creating greater flexibility for workers by expanding access to paid family leave and paid sick days and by increasing assistance for child care and early-learning programs.
  • Systemic reforms, including investing in education and reforming the criminal justice and immigration systems.
  • Increasing wages for workers by raising the minimum wage, supporting collective bargaining, and ensuring that workers have a strong voice in the labor market.

 

Chosen excerpts by Job Market Monitor. Read the whole story at  The long-term decline in prime-age male labor force participation

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