The Recent Rebound in Prime-Age Labor Force Participation

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To better understand what has happened with prime-age participation since 2015, we look at labor force participation trends by gender and educational attainment. Indeed, the post-2000 decline—and subsequent rebound—has looked different for different groups.

Between 2000 and 2015, labor force participation rates for people with less education fell more than for people with more education. During this period, the labor force participation rates of men and women with some college or less fell by 4.4 and 5.5 percentage points, respectively. By the same token, the 2015-18 rebound has been strongest for the same groups, at 0.9 and 1.1 percentage points for men and women, respectively.

It thus appears there is relatively little hangover from the recession for the most-educated workers, but considerable room to increase labor force participation for lower-skill workers, possibly by increasing their skills or by increasing the returns to low-education jobs. As shown by Jared Bernstein in a Hamilton Project proposal, tight labor markets seem to disproportionately boost the returns to work of low-wage workers, so continued labor market strength may help bring more of these workers back.

 

The recent decline in take-up of disability insurance can be viewed as supporting Bernstein’s take on tight labor markets. People outside the labor force have a number of reasons for not working, but disability accounts for almost one-third of prime-age nonparticipation. Disability caseloads are therefore informative about an important piece of the participation puzzle.

As shown below, caseloads peaked (as a fraction of the 18–64 population) in 2013 and then fell 0.17 and 0.05 percentage points for men and women, respectively.

 

Given that take-up of disability benefits depends in part on wages and other labor market conditions, the recent decline in disability caseloads may be driven by the same forces that are affecting labor force participation.

It is important to recall, though, that there are barriers to work for many of those outside the labor force. Almost 30 percent of prime-age nonparticipants list a disability as a barrier to their participation. Though it is clear from the figure above that most of the post-recession increase in disability caseloads has gone away, there are still large numbers of working-age Americans on disability rolls, and there are important barriers to labor force participation that go beyond labor market slack.

More than half of prime-age women outside the paid labor force—and over one-third of the overall prime-age non-participators—list caregiving as their reason for nonparticipation. Without child care or elder care, it would not be possible to increase these peoples’ participation.

For living standards to rise over time, either productivity must rise or the number of hours worked must increase. Through the second channel, the labor force participation rate has a direct impact on per capita income. It is therefore a welcome development that the drop in prime-age participation after 2008 has been partially erased. Looking forward, the vital question is whether participation will resume a long-term downward trend or whether a booming economy can continue to draw workers into the labor force.

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