A Closer Look

Participation in US – Labor market exits and entrances are elevated

Although people out of the labor force continue to enter each month at elevated rates, two findings suggest particular risk for the labor market outlook going forward: (1) the exit rate out of the labor market is generally more elevated among those without a four-year postsecondary degree and (2) people who are unemployed continue to leave the labor force at surprisingly high rates given the strength of labor demand.


To measure the contribution of different groups to aggregate labor force participation rate, we decompose the changes in the overall LFPR (16+) into changes in the age composition of the adult population and changes in the propensity of different age-by-sex groups to be in the labor force. We perform this exercise for the pre-pandemic peak (February 2020) to now (November 2021). Within that time period, we look at the contributions of each age-by-sex group to the initial decline in LFPR (February 2020 to April 2020), the first year of the recovery (April 2020 to April 2021), and the most-recent seven months (April 2021 to November 2021) when the adult population was universally eligible for vaccination. That most recent period might provide the best signal for the extent of the recovery in LFPR going forward. Figure 2 shows the effect of changing participation rates (by men and women in discrete age bins: 16-24, 25-34, 35-44, 45-54, 55-64, 65+) and each group’s contribution to aggregate changes in LFPR. Women are represented by purples and men by teals; the darkest colors are younger age groups and lighter colors are older age groups. Negative values (to the left of the vertical line at zero) show declining LFPR from the initial month to the final month of the designated period.

From February 2020 to November 2021, we find that population aging contributed -0.45 percentage points and changing participation contributed -0.87 percentage points to the total decline in LFPR.

Given our attention to the quit rate as well as declining unemployment, we next distinguish consecutive-month labor force exits by whether the person was initially observed as employed or unemployed (figure 5). After an immediate (and unusual) spike of prime-age labor force exits straight from employment to labor force nonparticipation in April 2020, those rates are roughly back to pre-pandemic levels (figure 5). Although the month-to-month movements in those rates are noisy, it is worth noting that exit rates out of employment were higher from summer 2021 through October than in late spring 2021, perhaps reflecting workers’ response to risks from the Delta variant.
The share of the population who are unemployed and exiting the labor force tends to rise when the labor market is relatively weak. At first, both after 2009 and after March 2020, this increase in the number of unemployed leaving the labor market as a share of the population owed to a rising number of unemployed workers. From 2009 to 2012 (when the labor market was slow to recover after the Great Recession) a rising propensity among the unemployed to exit meant that the share of the population leaving the labor force remained elevated, even as the pool of unemployed slowly shrank (figure 5b); at the time, observers worried that this trend reflected the unemployed being discouraged in the face of weak labor demand.

Turning to the current period, in the past six months the unemployed as a share of the population have been exiting at Great Recession rates (figure 5a). At the same time, the propensity of the unemployed to exit is roughly at its pre-recession rate (figure 5b). With labor market demand so much higher than before the pandemic, this is surprising and indicates a worrying level of discouragement among the unemployed. Further study will examine whether these people who are exiting are long-term unemployed who are perhaps losing their attachment to the labor market. Also worrying is the recent uptick in the propensity of the employed to exit (figure 5b), which since the summer has been elevated slightly relative to its pre-pandemic average.

Exit rates may have been depressed through summer 2021 to the degree that people remained in the labor force in order to collect expanded and more generous Unemployment Insurance (UI) benefits. Between June and September 2021, some states curtailed benefits early and then in September enhanced benefits sunset nationwide. Over those months, millions of people lost access to UI and those who maintained access saw a reduction in generosity. Exits from the labor market among the unemployed in recent months may reflect a postponement of planned exits from earlier in the pandemic. Nonetheless, given the very elevated level of labor demand and strong increases in wages, the rate of exits among the unemployed is an indicator that we will continue to monitor as it represents a clear risk to the economic recovery.

Chosen excerpts by Job Market Monitor. Read the whole story @  Labor market exits and entrances are elevated: Who is coming back?


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