More Americans
Are Leaving
The Work Force

Frances Bernadette Parker was 52 years old and had climbed through the ranks of Procter & Gamble Co.'s research operations. Then in the summer of 2002, she had a life-altering decision to make: Leave the company with a buyout package or keep working and end up with more responsibility but not more pay.

"It was more beneficial to me personally and stresswise to take what they were offering," she says.

With that, Ms. Parker became a job-market dropout, one of nearly two million adult Americans between the ages of 25 and 54 who have left the labor force since 2001. These dropouts aren't employed. Nor are they officially unemployed, which is defined as people who are actively seeking work but can't find it. Instead, Ms. Parker and others like her represent a shadow phenomenon of the jobless recovery. Some, though not all, are so discouraged they've stopped looking. Others, like Ms. Parker, are taking early-retirement packages or they are going back to school, collecting disability, moving in with family or taking care of loved ones. The common denominator for many is that the slow-growing job market is forcing them to change.

Of course, there have always been large numbers of working-age Americans who don't work for a paycheck, for a wide variety of reasons. But their numbers have risen to 75 million from 70 million during the past three years, and they include many who don't fit into the traditional categories. And the percentage of working-age Americans between 25 and 54 who are either working or looking for work has fallen during the past year below 83%, to levels last seen in the late 1980s. Among college graduates, the labor-force-participation rate was 78.4% in January, down from 79.7% in 2001. For the population as whole -- including teens and adults older than 54 -- the participation rate had fallen to 66.1% in January from 67.3% at the height of the economic boom, marking the largest and most persistent decline in labor-force participation since the early 1960s.

Some economists believe such numbers are helping to hold down the unemployment rate by taking people who would otherwise be classified as unemployed out of the labor force. The jobless rate fell to 5.6% in January from 6.3% last June.

One explanation is simple demographics. With the aging of the baby-boom generation, there are more Americans approaching traditional retirement age than ever before. Individual safety nets -- alternative means of support -- also factor into their decisions to stay out of the work force. And economic conditions play an enormous role. Jobs with low wages, late hours and scant benefits don't entice people to work the way better ones would. In many cases, the work for which people had trained disappeared or moved overseas. "Had there not been a shakeout in their industry, these people would probably still be employed," says Andrew Sharpe, director of the Center for Study of Living Standards in Ottawa.

A look at some of the new groups of labor-force dropouts and what they are doing instead:

Early Retirees

In 2002, 1.1 million men and women between ages 25 and 54 described themselves as retired, according to a September study by the Bureau of Labor Statistics. That was up sharply from about 330,000 for the same age group who described themselves as retired in 1991. At Procter & Gamble alone, 18,400 workers left the company with voluntary buyout packages between 2001 and 2003. In 1999, only 400 employees left the company with such packages.

Ms. Parker is living off her severance package and stock accumulated during three decades at P&G. The package included pay -- which she says was a little over $50,000 per year when she left -- and health benefits for one year. She says she might take a new job some day. But for now she's helping to take care of her aging mother and helping her brother operate as an independent trucker. "If the right thing came along and I had the opportunity to take it, I probably would" go back to work, says Ms. Parker. "I was such a workaholic."

Curiously, although a growing number of workers in their 30s, 40s and 50s are taking buyout packages and leaving the labor force, older workers are streaming back in. The only age group in the work force where labor-force participation has notably risen is among workers 55 and older. The labor-force-participation rate in this group stood at 36% in January, up more than three percentage points since the recession began in March 2001.

Some of the oldest workers are being forced back into the labor force because they aren't earning enough on their fixed-income assets with interest rates so low. Others saw big drops in their stock investments. Moreover, many older workers are healthier and fewer are enrolled in pension plans with mandatory retirement ages.

Black Women

Labor-force participation among African-American women fell to 63.8% in January after surging during the 1990s to more than 66%. The decline has been especially notable among more-educated black women. For those with associate's degrees, for example, the participation rate fell to 76.3% in 2003, from 82.3% in 1998.

Why are so many black women leaving the labor force? For many economists, it's a mystery. John Silvia, an economist with Wachovia Corp. in Charlotte, N.C., says it's possible these workers have been concentrated in sectors that were hit especially hard by the economic downturn, such as textiles, or state and municipal government. They also might be concentrated in the vulnerable middle and lower ranks of organizations that are being squeezed. More broadly, says University of Michigan economist Rebecca Blank, it is a reflection of larger trends in the economy: more women going back to school and more working women retiring after flooding into the labor force in the 1970s and 1980s.

Deborah Clark, a high school graduate, had worked in textile mills in North Carolina and Virginia for about 15 years when she was laid off in March 2002 by Pillowtex Corp., a maker of sheet and towel brands such as Fieldcrest and Royal Velvet. With jobs in her area scarce, Ms. Clark, single and the mother of a 13-year-old girl and a six-year-old boy, applied for federal retraining assistance and is now attending Rockingham Community College in North Carolina to become a hospital worker. To make ends meet, she has had to ask her parents and her brother for help paying some of her bills. "I don't like asking, but I have to," she says.

Welfare reform doesn't seem to be a factor. Welfare rolls haven't been rising since the labor market downturn set in and labor-force participation among the least educated black women -- one of the groups most affected by the reforms -- has held fairly steady at around 35%.

Disabled Workers

Disability has long been the major reason that working-age men leave the labor market. Now, the percentage of women leaving the labor market due to disability, while smaller than for men, is rising rapidly. According to a Bureau of Labor Statistics study, 2.8 million adult women aged 25 to 54 described themselves as out of the work force in 2002 because of disability or illness, 21% of all working-age women who aren't working for looking for work. In 1991, 1.4 million women fit into that category, or 13% of women out of the work force. Between 1999 and 2003, applications for federal disability insurance benefits rose to 1.9 million from 1.2 million.

Others, like Gail Williams, of Atlanta, Ga., are filing for private disability coverage. Ms. Williams was diagnosed with multiple sclerosis in 1979, but managed to continue working by getting around with a cane, and then a walker. Last month Ms. Williams, 47, filed for short-term disability leave with her employer, a large telecommunications company, where she helped manage the company's Web-hosting services. Ms. Williams said the division at her company is about to be eliminated and her condition -- which leaves her easily fatigued and with no feeling in her fingers and toes -- is worsening.

"I'm worn out," she says. "My idea is to stop working for a while, regroup and maybe get myself healthier."

Experts say it is no coincidence that disability claims rise during poor economic times. Louis Crandall, an economist at Wrightson ICAP LLC in Jersey City, N.J., says employers have become less willing to offer flexible work arrangements, such as job sharing or telecommuting. That could squeeze disabled workers. In addition, David Autor, a Massachusetts Institute of Technology economist who has studied the issue, says federal eligibility requirements for disability were eased more than a decade ago, making it simpler for workers to turn to the disability rolls when times get tough.

Older Students

While more-educated workers tend to do better in downturns than less-educated workers, many college grads found themselves in industries that were hit hard in the last recession, such as technology and finance. The outsourcing of white-collar jobs remains a threat for some of these workers. As a result, many are going back to school, even though they already have higher degrees. The labor force participation rate among college graduates was 78.4% in January, down from 79.7% in 2001.

It's common for college graduates to go on to law schools or business schools when times are tough. But many are showing up at community colleges for job training. Demos Orphanides, a 1996 graduate of Oberlin College, was earning about $60,000 in base salary and bonuses as an optical equipment tester at Nortel Networks Corp. in North Carolina when he was laid off and struggled to find a job. He was eligible for a federal retraining assistance program, which he used to enter a two-year graphic-arts program at Alamance Community College, in Graham, N.C. At Alamance nearly 10% of enrollments are among individuals with bachelor's degrees or higher.

"We kind of jokingly call ourselves the new graduate school," says Dan Ensalaco, assistant vice president of community development at Waubonsee Community College in Illinois. At his school, 26% of enrollments are among college graduates.

Write to Jon E. Hilsenrath at jon.hilsenrath@wsj.com¹

Updated February 17, 2004