Economist.com

Employment

Workers or shirkers

Jan 27th 2005 | WASHINGTON, DC
From The Economist print edition

A puzzle over America's shrinking labour force

MOST Americans seem to have more work to do than ever. But why are so many of them dropping out of the labour force?

The proportion of working-age people who have a job or are hunting for one is supposed to grow in a recovery. Yet the “labour-force participation rate” has been slipping ever since it reached 67.3% in 2000, leaving it at 66% today. Oddly, it's the young and the middle-aged who are leaving the workforce, while the old are joining it in greater numbers. This is a puzzle. Normally, when economic growth rebounds, so does participation.

One explanation is that, despite a rather low unemployment rate of 5.4%, the economy is still weak. People may have stopped hunting for jobs and therefore aren't popping up as “unemployed”. Some of these people are no doubt living off a spouse's income. But others, it seems, are relying on disability benefits: from 2000 to 2003, 1.8m more have claimed them, thanks in part to changes in the system that have made it far easier to join the rolls. Many of these people, argues Larry Katz of Harvard University, are probably only marginally disabled (a spot of back pain perhaps) and would otherwise be working.

Another explanation, proposed by Roger Ferguson, vice-chairman of the Federal Reserve, is a permanent structural shift in the economy away from declining industries. Put simply, laid-off factory workers cannot go back to the same old jobs. Since these blue-collar types lack the skills to work in a different industry, and dislike re-training, many have opted for early retirement.

Another principal group to blame is women. The participation rate of women in the workforce climbed steadily after the second world war to 60% in 1999, but Meg McConnell and Charlie Himmelberg of the Federal Reserve Bank of New York argue that the unusual bonanza of the late-1990s bubble economy masked an overall slowdown in the rate at which they joined it. Now that the generous perks have gone, many women have withdrawn.