Backgrounder: Who Is Working?

December 15, 2017

 by Maryann O. Keating, Ph.D.

For those between jobs, nothing puts a damper on Holiday cheer like Aunt Nellie’s inevitable question, “Now where did you say you were working?”

Although the U.S. unemployment rate of 4.1 percent approaches full employment, the actual number of people with jobs is two million below its prerecession peak (Edward Lazear, “The Incredible Shrinking Workforce,” The Wall Street Journal, Dec. 8, 2017, A17).

Fewer people are at work today in America than before the Great Recession.

The significant decrease in the proportion of Americans, 16 and older, working in this growing economy is not totally explained by baby boomers entering retirement. Rather, the decline in employment of those ages 25 to 54 accounts for much of the job deficit.  Is this a serious issue and what are these potential workers doing?

During a recession, the number of people on disability rises, and, because their skills depreciate, re-entering the workforce becomes increasingly difficult. However, disability payments cannot explain decreased employment rates for those in their late twenties and early thirties.

Low labor force participation is a legitimate concern of government officials attempting to fund Social Security, Medicaid, and other programs dependent on payroll and income taxes. However, there is something distasteful about policies designed primarily to draw people into the labor force in order to tax them. Many of us view the highs and lows of working in the lab or on the line, in the shop or classroom, in dealing with patients or clients as a way of finding meaning and personal fulfillment. Nevertheless, the primary reason we agree to punch the time clock is to provide for ourselves and those for whom we are responsible.

An individual’s willingness to seek and accept paid employment is a function of compensation and take-home pay. It is also dependent on personal characteristics. Statistical techniques can be used to compare the characteristics of those young adults, ages 26-31, in full time employment with those working part time or opting out altogether. Results, presented here, are based on data for over 5,000 individuals participating in Department of Labor Statistics’ National Longitudinal Survey of Youth (Keating and Keating, “Characteristics of Young Adults Participating Full Time in the U.S. Labor Force,” Indiana Policy Review, Spring, 2014).

It was expected that educational attainment by age 26 would automatically translate into an increased likelihood of full time work, but results do not support this assumption. Potential earnings are more significant.

Economists theorize that whenever the wage offered an applicant is equal to or higher than the expected wage, an individual is more likely to accept that position. Our study confirms this. If a respondent locates a job paying a wage equal or higher than average for his or her educational level, the odds of full time work increase significantly; this is particularly so for males.

As expected, better health is positively and significantly associated with full labor force participation. Does having children reduce the likelihood of full time employment? Actually, having one or more children consistently increases the probability of full time labor force participation.   The effect is stronger for women than men, but both males and females are willing to work in order to provide increased consumption for their own children.

For women, the state of being married, as compared with being single, separated, divorced or cohabitating, lowers the odds of full participation but the effect is not significant. On the other hand, marriage (and cohabitation to a lesser extent) significantly increases the odds of male full time work.

Certain personal characteristics associated with labor force participation are obvious. For example, being enrolled in any educational program reduces the likelihood of full time work for this cohort but more so for males.  Also, time engaged in viewing television, used here as a preference for leisure versus wage income, is consistently and significantly associated with decreased odds for full time employment.

From October, 2016 to October, 2017, the Bureau of Labor Statistics reports an over 83,000 decline in Illinois’ labor force.  During the same period, Indiana’s labor force grew by 12,000; this is good but lower than estimated population growth.
Given the current tightness in U.S. labor markets, low labor market participation rates may not persist as a serious problem.  In November, the decline in the jobless rate among workers over 25 without a high school diploma was lower than any time since 1992. If rapid grown translates into increased take-home pay, people may get off the couch and into paid employment

A good rejoinder to Aunt Nellie’s question may be, “I fully expect to be employed in 2018, and actually refused two or three positions recently because the wage offered did not quite meet my expectations.”

Maryann O. Keating, Ph.D., a resident of South Bend and an adjunct scholar of the Indiana Policy Review Foundation, is co-author of “Microeconomics for Public Managers,” Wiley/Blackwell.



Comments...

  • JOHN ACCETTURO says:

    Read article today in WSJ that percentage of college students over 24 is growing significantly. That could be having some impact on labor participation in that age bracket.

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