Sunday, April 06, 2014

Possible Reasons for the Decline in Prime-Working Age Men Labor Force Participation

by Bill McBride on 4/06/2014 06:42:00 PM

An interesting topic is why there has been a steady decline in the labor force participation rate for prime-working age men (ages 25 to 54).

In the previous post I wrote: "The participation rate for [prime-working age] men decreased from the high 90s decades ago, to 88.5% in March. This is just above the lowest level recorded for prime working age men. This declining participation is a long term trend, and the result of inherited wealth - OK, just joking - the reasons for this decline in working age men participation are varied and need more research, however some analysts incorrectly blame this trend solely on more social benefits."

First here is a repeat of the of the graph I posted earlier today:

Participation Rate, 25 to 54Click on graph for larger image.

This graph shows the changes in the participation rates for men and women and combined since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and then flattened out. 

The decline in the participation rate for prime-working age men is a long term trend.

Participation Rate, Men, 25 to 54The second graph shows just prime-working age men (Note the change in scale from the previous graph to better show the trend).

The dashed line is the trend from 1960 through 2007 (trend line does not include the recent recession - economic weakness has pushed down the participation rate below trend recently).

So why the long term decline? Here are some possible reasons:

1) Cultural changes. As a larger percentage of women entered the labor force (pink line in first graph), this allowed men some more options, such as: a) take some time off between jobs, b) go back to school to improve skills or be able to change careers, c) be a "Mr. Mom".   There used to be stigma for men not working - or ego problems with women being the prime "bread winner" - but over time that stigma has lessened.  Even though the percentage of prime-working age women in the labor force is now declining slowly, I think the cultural changes are still the main driver for the decline in the participation rate for men.

2) Demographics.  It is possible that the changing ethnicity of the prime working-age population is contributing to the decline in the participation rate for prime-working age men.  This is unclear from the top level data (We'd need data by ethnicity, sex, and age group).

3) Underground Economy.  It is also possible that the underground economy (cash economy) is growing, and some of these men are actually working "off the books" for cash.

4) Increased benefits for disability and illness.  Note: Everyone opposes fraud, but that is probably only a small problem.  Overall most Americans would consider it good news that people with serious illnesses or disabilities receive benefits - even if that has contributed a little to the decline in the participation rate.

5) Inheritance and lower estate taxes.  Although the impact has probably been small, the decline in the participation rate for working-age men has tracked the decline in the inheritance tax over the last 50 years.  I'm guessing there are more working-age men not working today because they are living off their inheritance.

I'm sure there are other possible reasons too.  It is important to understand - that for whatever reason - this decline in participation for prime working-age men is one of the drivers of the overall decline in participation (the two main drivers are a large cohort moving into retirement, and more young people staying in school).

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