Much has been written lately about the 93 million working-age people in the U.S. who are today neither working nor looking for a job. These millions of people translate into the lowest rate of labor participation since the mid-70s, and even though it had risen to a peak of 67.6% in 1997 the rate has been declining since that year, as can be appreciated in the chart.The chart shows that the labor participation rate was fairly stable between 1948 and the late 60s, hovering around 60%. Then it began a gradual and steady rise for the following 30 years until it peaked at the above-mentioned rate of 67.6% in 1997, only to fall continuously over the last 18 years. The increase in participation between the 1960s and the 90s is attributed primarily to increases in the female participation rate, as significant numbers of women joined the labor force and obtained jobs. In fact, female participation rose steadily from around 33% in 1948 to a peak of 60.4% in 1997.
But back to the 93 million. Often we read articles and hear opinions that, attempting perhaps to make a political point, imply or state directly that these 93 million are unemployed. They say that these people are not in the labor force because they have been shut-out of the market from a lack of employment opportunities. Granted, for some people that may be the case. Frustrated because they can't find employment they stop searching for a job altogether and, thus, are not counted anymore as part of the labor force. However a deeper analysis into the data shows that there are other reasons explaining why there are so many people not in the labor force and why this number will continue to increase in the foreseeable future.
Age Drives Participation in the Labor Force
The primary reason is the change in age structure of the population; that is, the fact that the U.S. population is getting older provides a partial explanation. The chart to the right displays today's population mix by age group (the red bars) compared to what it was 25 years ago in 1990 (the blue bars.) Each bar stands for the percentage of the year's population accounted by each age group. We can see the aging of the population in that the red bars are higher than the blue ones for the older three groups, that is people 45 years and older. This group represents today 52% of the working age population, up from 40% in 1990. Conversely, the under 45 years population fell from 60% in 1990 to today's 48%. Also note that the percentage drops for every bracket under 45 years.
The pie chart conveys a more clear view of the change in mix by age group since 1990. Over the last 25 years, the working-age population rose by 61.7 million persons, to this year's 251 million. Each slice in the pie represents the percent of the total change between 1990 and 2015 for each of the seven age groups. Thus, we can see that the largest change occurred among the 55 to 64 years group with 32% of the total change, or just under 20 million persons. Second in line are the two groups that bracket the 55-64 years one, each with 28% of the total.These three age groups, 45 and older, thus represent 89% of the total change in working population, while they account for just over half (52%) of the total working age population.
Alternatively, we can examine this phenomenon by simply looking at the participation rates, shown in the chart. Statically, there is a significant drop in participation when a person moves from the 45-54 yrs to the next age bracket- the rate differential is 15.7 percentage points (from 79.3% to 63.6%). This means that the number of people in the labor force will drop by 15.7% over the next decade simply by the number of people in the 45-54 group who fall now in the 55-64 group. And the drop is more dramatic for the 65 yrs and older, the change in rte is nearly 45 percentage points. Again, this means that simply due to aging, in a year nearly half of the persons who move to the next higher age bracket will fall out of the labor force. There is virtually nothing that can be done about this trend- it's a demographic factor.But Rates Are Dropping Among Younger Population
The curious thing is that the declines in participation rates are occurring mostly among the younger population. That is, persons under 45 years of age are the ones leaving (or not joining) the labor force. We find that, over the last 30 years, the younger a person is the more likely that he or she is leaving the labor force. Thus we see that for those aged 20 to 24 years the participation rate has fallen by 8.4 percentage points since 1985.
In contrast, we find that older people are bucking this trend, they are in general becoming more active in the labor force. One reason for this phenomenon is the fact that people are healthier today, live longer and have more productive years, and are capable to work when they are older- very likely they enjoy work. A second reason is economic necessity; there is a large number of people at retirement or near retirement age who do not have sufficient funds and thus are forced to work. Many of them may have lost their homes or savings in the financial crisis.It is interesting to note that more people 70 years and older are joining the labor force. The participation rate for both men and women in that age group has increased by around five percentage points over the last 30 years. One would like to say that they enjoy working so much they've returned to the labor force, but it's more likely they are doing so out of sheer economic necessity. (The chart displays separately the data for men and women 70 years and older, this is because we don't have readily available the combined figure, although we know that it is around five.)
If participation rates had remained at their 1985 levels we would have today nearly 2 million fewer in the labor force- 155.7 million at the '85 rates compared to 157.5 million actual. But the mix is radically different; we would have nearly 7 million more in the labor force who are younger than 45 years and, conversely, about 8.9 million in the 45 and over age group. The more younger people are in the labor force, the greater promise of larger economic output in the future (younger people have more working years in their future naturally) and paying more to many government pension plans, such as Social Security at the Federal level, that depend on the ongoing contribution from working people to remain viable.
So the more relevant figure to discuss is 32 million, rather than the touted 93 million. Thirty two million is the number of people under 45 years of age who are not in the labor force. That is, who for one reason or another are not interested in joining the labor force and becoming productive members of the U.S. economy.
