Academic Literature

Employment-to-Population Ratio in US – Why the decline ?

For several decades now, the employment rate among prime-age U.S adults has been falling. Less-educated males have experienced the largest drop in employment, but the troubling trends in participation are not limited to this group. Employment rates among women, which had been rising since the late 1960s, have stagnated and in some recent years declined. These worrisome developments were exacerbated by the Great Recession, but their roots preceded its onset. Understanding the reasons behind these long-term trends remains a priority for labor economists and policy makers alike.

In this paper, we review the evidence regarding the role of various potential factors in driving the structural decline in employment-to-population ratios over the period 1999 to 2016, with an emphasis on the experiences of prime-age individuals. Our review is guided by two questions. First, what is the evidence on the causal relationship between a particular factor or set of factors and employment rates? Second, can changes in these underlying factors explain the trend in employment? Throughout our discussion of existing evidence, we highlight open questions on which more research is needed.

Population aging has had a notable effect on the overall employment rate over this period, but within-age-group declines in employment among young and prime age adults have been at least as important.

Our review of the evidence leads us to conclude that labor demand factors, in particular trade and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment. Labor supply factors, most notably increased participation in disability insurance programs, have played a less important but not inconsequential role.

Increases in the real value of the minimum wage and in the share of individuals with prison records also have contributed modestly to the decline in the aggregate employment rate.

In addition to these factors, whose effects we roughly quantify, we also identify a set of potentially important factors about which the evidence is too preliminary to draw any clear conclusion. These include improvements in leisure technology, changing social norms, increased drug use, growth in occupational licensing, and the costs and challenges associated with child care.

Our evidence-driven ranking of factors should be useful for guiding future discussions about the sources of decline in the aggregate employment-to-population ratio and consequently the likely efficacy of alternative policy approaches to increasing employment rates.

Chosen excerpts by Job Market Monitor. Read the whole story at Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence

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