Why We Shouldn’t Fear a Shrinking Labor Force

It’s good for our communities when toiling for a paycheck isn’t the only thing people do.
by | May 14, 2012
 

The Bureau of Labor Statistics' monthly employment reports always get the attention of public officials and civic leaders, and for many of them the April report, showing another decline in the nation's labor-force participation rate, might have seemed particularly troubling. The proportion of people over the age of 16 who are employed or looking for work declined for the second straight month, to 63.6 percent, down from its peak of 67.3 percent at the height of the dot-com bubble in 2000.

The Wall Street Journal, in an editorial breathlessly headlined "The Vanishing Workers," called this "the most troubling trend in the April jobs report" and warned that "the priority of the next administration must be to reverse the decline." So how scared should we be? Not much.

Labor-force participation rateIt may come as a shock to captains of industry, but there are good and useful things to do with one's time in addition to paid employment. And as Ann Romney reminds us, some of the most essential jobs are done without benefit of a paycheck. In fact, it is quite possible that the labor-force participation rate has actually been too high and that the decline is a positive development for American communities.

From 1948 until the middle 1970s, the rate was under 60 percent. When you break it down by gender, you see that the rate for men steadily declined from 1948 to the present and that the decline has accelerated a bit since the beginning of the recession. The rate for women rose sharply from 1948 to 1998, when it leveled off, and it too has dropped during the recession. So the rise in the overall rate above the 60 percent at which it had been for a quarter-century was largely the result of women's entry into the workforce. The middle 1970s also is the point at which real wages began to decline, a result in part of the increased supply of labor allowing employers to bid down wages.

Labor-force participation by age groupLooking at labor-force participation by age is also illuminating. From 1990 through 2010, participation by Baby Boomers, those 50 and older, increased — dramatically for the oldest of this cohort, those 65 and older. The labor-force participation rate of Generation X, people aged 30 to 50, dropped slightly. (Neil Howe, a demographer who writes and advises companies on generational effects, told me that the decline might be attributable to the fact that Generation X males are spending more time with their children.) And the percentage of people under 24 enrolled in school has been steadily rising since at least 1970; their labor-force participation rate has been declining at a rate that is the mirror image of their school-attendance rate.

There's another aspect of these labor statistics that we should keep in mind. While worker productivity has been rising for decades, incomes have been falling. Median household income fell last year by 2.3 percent, to $49,445, and has declined by 7 percent since 2000 after adjusting for inflation — the first decade-long decline in at least half a century. The Bureau of Labor Statistics reports that the median hourly wage for all workers is now $16.57. At that rate, it takes 2,984 hours — more than 900 hours beyond full-time at 40 hours a week — to achieve that median income of $49,445.

I think that one reason for the declining participation of younger people in the labor force is that they have looked at the way their parents seemed to live to work and want more balance in their lives. They've read "Bowling Alone" and don't much like what it describes. They want more time with spouses and more time with children. They want time for relationships with friends and to feel connected to the community. And they're staying in school longer preparing to do the things in life they most want to do.

We don't need to increase labor-force participation by increasing the number of people working at low-wage jobs. Instead, the priority for the next administration ought to be to create an economy strong enough that the typical full-time worker, male or female, can earn enough to support the typical family. The result will be stronger marriages, happier children and more livable communities.

Mark Funkhouser  |  Director, GOVERNING Institute
mfunkhouser@governing.com

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