Since 2001 nearly two million Americans, between the ages of 25 and 54, have left the workforce. This is why the unemployment rate has been falling, but the number of people with jobs is not showing comparable improvement.
Why leave the work force? A recent (Tuesday, February 17, “More Americans are Leaving the Work Force”) Wall Street Journal article suggests several answers:
1. More people are taking early retirement. Interestingly, workers over 55 are reentering the work force, the only group to show significant net increase. So these early retirements must be early indeed, or could involve a temporary willingness to live off severance pay.
2. Educated black women are leaving the work force in greater numbers. Some are losing their jobs. Others are returning to school for an advanced degree. In any case this group shows one of the largest participation declines, from 82.3% in 1998 to 76.3% in 2003.
3. Many people, especially women, are leaving for labor force for reasons of disability. Between 1999 and 2003 applicatons for federal disability insurance benefits rose from 1.2 million to 1.9 million. It is unlikely that more people are being injured. Employers are less willing to offer flex-time or part-time work during hard times, which causee disability claims to increase. See Alex’s post Paying for Disability for more.
4. White collar employees, hit by downsizing, are returning for additional education. The new trend is for college graduates to return to community colleges for retraining.
The bottom line: I don’t doubt any of these hypotheses or estimates. But I still don’t understand why the number of employed Americans is recovering so slowly. On the bright side, parts of #1, #2, and #4 will later kick in as productivity benefits, or reflect a lesser need to work.