Author: Andrew Berger-Gross
This is the latest installment of an ongoing LEAD series examining the relationship between demographics and the labor force. North Carolina’s labor force participation rate (the proportion of the population that is either employed or looking for work) has seen nearly continuous declines since 2001. Almost all of this decrease can be explained by a growing retirement-age population, driven by natural aging, and declining youth labor force participation, driven by increased school enrollment.
However, a glance at data from the Current Population Survey (CPS) reveals that something is potentially amiss among North Carolina’s prime working-age population (age 25 to 54) as well. While these workers are participating in the labor force at much higher rates than their younger or older counterparts, North Carolinians age 25 to 54 have seen their labor force participation rates decline somewhat since 2001 (albeit to a much lesser extent than those age 16 to 24.)
Explaining the decline in participation among prime-age workers is more difficult than for younger or older workers, who are likely to be in school full time or retired (respectively.) It is much less common for a person age 25 to 54 to abstain from the labor force.
We can readily see that the majority of growth in prime-age workers out of the labor force is a result of persons who do not want a job right now. Of the 224,000 prime-age workers added to the not-in-the-labor-force ranks in North Carolina since 2001, only 24 percent (53,000) indicated that they want a job now. Although this represents a minority, it is a larger proportion than for younger workers, among which we learned earlier only 9 percent of not-in-the-labor-force increases are attributable to those who want a job.
One explanation for labor force declines that is sometimes offered by commentators is the increasing utilization of federal disability benefits, which (in theory) provide an incentive for not working. Another common explanation assumes that labor force declines are driven by jobless workers who are too “discouraged” by the difficult labor market to even seek employment.
The CPS provides evidence that these conventional explanations might be lacking. Only a small fraction of the increase since 2001 in the prime-age not-in-the-labor-force population can be accounted for by jobless workers who are discouraged about their job prospects. A larger fraction can indeed be explained by increases in the number who claim their health or disability prevents them from working.1
However, the majority of growth is due to “other reasons.”2 These “other reasons” are not broken out individually in this particular dataset; as a result, it is difficult to say for sure what additional factors are driving labor force dropouts in this segment of the population using these data alone.
In general, it is important for readers to understand that labor force participation simply reflects a trade-off between wage-earning work and other activities (what economists refer to as “leisure”). Work provides relatively less benefit for some persons — particularly those who are school- or retirement-aged — while changes in technology, public policy, social norms, and the occupational composition of the economy might diminish the relative value of work for some prime working-age men and women as well.
A lower labor force participation rate, even if driven by benign demographic factors, reduces the productive capacity of the economy and might lead to slower lower economic growth unless offset by population increases or productivity improvements. Economic and workforce development policies that bolster workers' earnings potential (thus making work more valuable) might help to reverse this trend of declining participation in North Carolina’s labor market.
General Disclaimers:
The Current Population Survey (CPS) estimates are based on a survey and are subject to sampling and nonsampling error. Note that the state-level CPS estimates are not directly comparable to state-level labor force estimates from the Local Area Unemployment Statistics (LAUS) program due to differences in methodology. Any mistakes in data management, analysis, or presentation are the author’s.
Footnotes:
1 “Discouraged workers” consist of jobless individuals who did not look for a job in the past month, but who have sought employment within the previous 12 months and who indicate that they do not believe any jobs are available for them. “Disabled” in this context refers to workers who indicate that ill-health or physical disability prevents them from maintaining employment; the CPS does not collect data regarding receipt of disability benefits.
2 These "other reasons" include child care and other family responsibilities, transportation problems, school or other training, and additional reasons.