Working
July 12, 2023
The number of prime working age persons (those aged 25 to 54) in the United States has never been higher. Simultaneously, there are labor shortages and about 9.8 million job openings. Various factors have been blamed, including the “Great Resignation” and low labor force participation rates. Not exactly!
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The phrase Great Resignation originated to describe the perception that an unusually high number of people were leaving their jobs during the pandemic. In 2021, a record number of Americans voluntarily quit their jobs (47.8 million, excluding those who retired or transferred within a company). However, most individuals who quit were actually just changing jobs; the size of the workforce reached pre-pandemic levels by the spring of 2022 and has continued to rise. As I wrote a while back, what we really saw was a Great Reshuffling.
For the labor force participation rate, which is simply the number of people working or seeking work divided by the working-age population, it’s important to look beyond the top-line number. In February 2020, just before the pandemic, the labor force participation rate stood at 63.3%. It had been generally falling for about 20 years from a peak of 67.3%, though it did flatten out through the mid-2010s and had even risen modestly prior to COVID-19.
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Currently, the overall participation rate remains slightly below its pre-pandemic level. For prime working age ranges (25-54), however, it is now well above where it was in February 2020, with the highest rate among men aged 35-44 (90.3%). Importantly, the prime working age group of females is at an all-time high, thus overcoming the COVID challenges stemming from massive shutdowns in the service sector and school-age children being at home (both of which disproportionately affected this segment of the workforce).
The participation rate for those 55 and over remains below pre-COVID-19 levels, and workers in this age cohort number about 524,000 fewer than before. However, that’s only 0.3% of the US civilian labor force. The pandemic accelerated trends already in place for this age group, and many have likely permanently retired (some earlier than they had originally planned).
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It’s important not to read too much into the overall participation rate. By definition, lower rates of labor force participation are likely as the younger segments of the baby boomer generation continue to retire but remain in the denominator of the participation rate calculation). It’s just arithmetic.
As the economy slows, immediate labor shortages may become less noticeable (although the long-term pattern will be tight due to lower population growth). Moreover, it’s probable that some additional people will be attracted back into jobs. Nonetheless, while Texas has less of an issue, demographics are not moving in our favor. Stay safe!
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