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Explaining the Decline in Labor Force Participation in the United States

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Hyatt Regency Atlanta, Hanover C
Hosted By: Labor and Employment Relations Association
  • Chair: Susan N. Houseman, W.E. Upjohn Institute for Employment Research

Explaining the Decline in the United States Employment-to-Population Ratio: A Review of the Evidence

Katharine G. Abraham
,
University of Maryland
Melissa Kearney
,
University of Maryland

Abstract

This paper first documents trends in employment rates and then reviews what is known about the various factors that have been proposed to explain the decline in the overall employment-to- population ratio between 1999 and 2016. 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.

The Rise of the In-and-Outs: Declining Labor Force Participation of Prime Age Men

John Coglianese
,
Harvard University and Federal Reserve Board

Abstract

This paper documents that much of the decline in labor force participation of U.S. prime age men comes from “in-and-outs”—who I define as men who temporarily leave the labor force. Individuals moving in and out of the labor force have been an understudied margin of labor supply but account for 20–40% of the decline in participation between 1984 and 2011. In-and-outs are distinct from unemployed individuals, experiencing no loss of future income as a result of their time out of the labor force, and represent a distinct margin of labor supply from long-term labor force dropouts. Examining explanations for the rise of in-and-outs, I find little evidence to suggest that changes in labor demand are responsible.

United States Employment and Opioids: Is there a Connection?

Janet Currie
,
Princeton University
Jonas Jin
,
Princeton University
Molly Schnell
,
Princeton University

Abstract

This paper uses quarterly county-level data to examine the relationship between opioid prescription rates and employment-to-population ratios from 2006-2014. We first estimate models of the effect of opioid prescription rates on employment-to- population ratios, instrumenting opioid prescriptions for younger ages using opioid prescriptions to the elderly. We also estimate models of the effect of employment-to- population ratios on opioid prescription rates using a shift- share instrument. We find that the estimated effect of opioids on employment-to-population ratios is positive but small for women, but there is no relationship for men. These findings suggest that although they are addictive and dangerous, opioids may allow some women to work who would otherwise leave the labor force. When we examine the effect of employment-to-population ratios on opioid prescriptions, our results are more ambiguous. Overall, our findings suggest that there is no simple causal relationship between economic conditions and the abuse of opioids. Therefore, while improving economic conditions in depressed areas is desirable for many reasons, it is unlikely to curb the opioid epidemic.

Work and Opportunity before and after Incarceration

Adam Looney
,
Brookings Institution
Nicholas Turner
,
Federal Reserve Board

Abstract

The tax code provides subsidies for employers to hire ex-felons, to promote employment among low-income workers, and to encourage economic opportunity in distressed areas. These incentives are motivated to different degrees by a belief that economic opportunity facilitates successful reintegration of ex-felons and deters entry into crime. In this paper, we offer a more comprehensive view of the labor market opportunities of ex-prisoners in the U.S. by linking data from the entire prison population to earnings records over a sixteen-year period. These data allow us to examine employment and earnings before and after release and, for younger prisoners, their family income and neighborhood in childhood. After release, only 55 percent of former prisoners have any earnings and those that do tend to earn less than the earnings of a full-time job at the minimum wage. However, their labor market struggles start earlier, with similarly high rates of joblessness prior to incarceration and with most prisoners growing up in deep poverty. For example, boys who were born into families in the bottom 10 percent of the income distribution (families earning about $14,000 per year) are about 20 times more likely to be in prison in their 30s, compared to boys born into families in the top 10 percent (families earning more than $143,000 per year). A disproportionate share grew up in neighborhoods where child poverty rates are high, most parents are unmarried, few men are employed, and where most residents are African American or American Indian. The combination of high rates of incarceration and low employment rates among ex-prisoners implies that roughly one third of all not-working 30-year-old men are either in prison, in jail, or are unemployed former prisoners. We discuss the implications of these findings for the design of policies intended to encourage employment and rehabilitation of individuals with a criminal record.
Discussant(s)
Stephanie Aaronson
,
Federal Reserve Board
Mark Duggan
,
Stanford University
JEL Classifications
  • J2 - Demand and Supply of Labor