The Great Recession amplified the economic anxieties that Americans experience in good and bad times. It also focused policy and media attention on economic problems that predate the downturn by decades. These long-term issues were “rediscovered” as recent structural problems, such as “secular stagnation” and Thomas Piketty’s r (the return on capital) moving closer to g (the economic growth rate). Income inequality became the defining challenge of our time, even though it had been high and rising during the 1990s boom and the financial crisis lowered it significantly (if temporarily).
But “labor-force dropout” — jobless people giving up on finding work — has also received renewed attention. Neither policy researchers nor policymakers nor media commentators have understood this problem sufficiently. How concerned should we be about labor-force dropout and its sources?
In one sense, we have been overly concerned. Much of the increase in the share of Americans who are neither working nor looking for work may be attributable to positive or benign trends (such as increased school enrollment, earlier retirement, or greater sharing of household duties by couples), especially among younger men and women and older men. Among men of prime working age (25 to 54), however, nearly all of the increase is attributable to a rise in the share who do not want a job. One-third of the drop in the share of men in the labor force is accounted for by an increase in men who say they are sick or disabled. That group’s health status has not deteriorated over time, however, and evidence suggests that federal disability programs may be inducing a growing number of men who are able to work to drop out of the labor force.
Bureau of Labor Statistics data on labor-force participation — the fraction of Americans working or looking for work in a typical week — start in 1948. Among men, that year has the highest participation rate on record: 87 percent were in the labor force. By 2013, male labor-force participation had fallen to just 70 percent.
That the concern over labor-force dropout is properly focused on men is easily seen in the labor-force participation figures for women. Female participation rose steadily until 1999, as more and more women — especially married women — entered and remained in the work force. Only one in three women were working or looking for work in 1948, but 60 percent were doing so in 1999. As recently as 2008, the figure was still between 59 and 60 percent, though it fell to 57 percent by 2013.
What is more, if we have a problem with labor-force dropout, it is largely confined to prime-working-age men specifically, as noted above.
Labor-force participation among men under 25 years old was 75 percent in 1978, down only slightly from 76 percent in 1948. It declined at an accelerating clip after that, falling below 57 percent by 2013. But increasing school enrollment explains most of this drop. Department of Education statistics show the enrollment rate among male 16- to 24-year-olds rising by about 13 percentage points from 1980 to 2012. Their labor-force participation fell by 18 percentage points over the same period.
And among older men, labor-force participation has actually been on the rise. Among men ages 55 to 64, participation bottomed out in 1994 at 66 percent (down from 90 percent in 1948). That large decline partly reflects a fall in the typical age at retirement. After 1975 it is possible to disaggregate this group into men 55 to 59 years old and men 60 to 64 years old. From 1976 to 1994, labor-force participation fell by seven points among the younger group and by eleven points among the older group (and the older group grew faster than the younger group). Since 1994, labor-force participation among male 55- to 64-year-olds has risen to 70 percent. Most of this increase was due to rising participation among men ages 60 to 64. These trends predate the Great Recession by well over a decade and have held steady through peaks and troughs, so they are unlikely to reflect growing pressure from economic hardship to delay retirement.
That leaves men in the prime working-age years — between 25 and 54. Labor-force participation in this group peaked in 1951, at 97 percent. By 1970, it was still at 96 percent. But it soon began a steady decline, falling to 88 percent by 2013, nine points below its peak. What happened?
Using the survey data on which these BLS estimates are based, it is possible to begin teasing out why the labor-force participation of working-age men declined. The Current Population Survey (CPS) is conducted monthly, with questions varying somewhat in different months. Using May surveys, one can go back to 1969 to explore what men were doing in a typical week and whether those who were not working wanted a job. The March surveys let us look at men who did not work at all in the previous year and determine why they were not employed.
One way to start is by looking at working-age men in May who were neither working nor looking for work and determining how many of them said that they wanted a job. It turns out that only a minority have ever been interested in work. The fraction saying that they wanted a job, might be interested in one, depending on the details, or didn’t know was 28 percent in 1969 and showed no trend of change until the mid 1970s. It rose from 26 percent in 1974 to 38 percent in 1985 before falling back to 26 percent in 1989. By 1993 it was back up to 30 percent.
Unfortunately, 1993 was the last year this question was asked of a representative group of men not in the labor force. We can say, however, that among non-retired, non-disabled working-age men not in the labor force, the share open to taking a job fell from 44 percent in 1994 to 27 percent by 2006. (The 1994 estimate is much higher than the 1993 estimate, probably because retirees and disabled men — who were excluded from the survey beginning in 1994 — are less likely to want to work than other men who leave the labor force.) The implication is that 2006 was almost certainly a historical low for interest in work among non-working men. By 2013, the share open to working was back up to 36 percent, though that was probably still below pre-1994 levels.
In short, it is likely that among working-age men who are neither working nor looking for work, no more than 40 percent (the pre-1994 peak) have ever been interested in a job. That share fell before the Great Recession, probably to below 30 percent. I estimate that between 1979 and 2006 — two years that were at or near business-cycle peaks — the increase in men out of the labor force who were uninterested in working explains 94 percent of the overall decline in working-age-male labor-force participation.
On its face, this is a big problem for the standard story about “labor-force dropout,” a phrase that suggests that declining labor-force participation reflects frustration with unsuccessful job searches and a weak labor market. Not only do just a minority of men who are out of the labor force want a job, but the fraction who say they want one responds fairly weakly to changes in the strength of the labor market, fluctuating within a 15-percentage-point band that remains below a majority. And changes in the number of men who want to work have almost nothing to do with the rise in male labor-force dropout.
Nevertheless, whether we should worry about these trends is not immediately obvious from these estimates. If all the men uninterested in work were students, early retirees, or filthy rich, we would celebrate the decline in male labor-force participation as an indicator of rising prosperity. If it instead reflected an increase in non-working men who were unengaged in productive activity and reliant on safety-net programs, that would be cause for concern.
Unfortunately, determining why these non-working men do not want to work and how their reasons have changed over time is not possible using the May or March CPS. Still, the answers that respondents gave when asked why they were not working or looking for work can provide some clues. Since 1996, CPS respondents have been able to indicate that a disability prevented them from working, though they are not asked whether they would take a job if they could. In the May surveys between 1996 and 2012, roughly half of men who were outside the labor force blamed a disability. That was much higher than the share who said they were keeping house (13 percent in 2012), in school (13 percent), or retired (10 percent). (Twelve percent gave the response “Other.”)
Using the March CPS, we can look at trends farther back in time, though survey changes again frustrate comparisons between the past and the present. The share of out-of-the-labor-force men who said they had not worked at all in the previous year because of a disability rose from 41 percent in 1969 to 54 percent by 1976. It fell to 44 percent by 1984 and then increased only slightly through 1993 (when it was 45 percent). At this point there is a break in the series, but the share of working-age men reporting that a current disability kept them out of the labor force rose from 54 percent in 1994 to 57 percent in 2001. It then fell, getting down to 41 percent by 2013.
As a share of all men (in or out of the labor force), the number reporting a disability grew steadily, except for a brief decline in the late 1970s and early 1980s. This pattern roughly follows trends in the share of the working-age population receiving Social Security Disability Insurance (SSDI) benefits. SSDI receipt first rose during the 1970s, for reasons mostly related to public policy and the state of the economy rather than to health factors. During this period, disability benefits became more generous and federal oversight of new awards and changes in disability status deteriorated. In addition, a new program for the disabled who had low incomes — Supplemental Security Income, or SSI — was introduced in 1974. The deep recession of 1974–75 also increased SSDI receipt, showing that “ability to work” could diminish not just because of a worker’s health, but because of the health of the economy.
In 1977 and again in 1980, Congress legislated changes to SSDI that made benefits less generous and tightened federal oversight. However, after a string of widely publicized cases of beneficiaries’ being kicked out of the program, a beleaguered Congress passed new reforms in 1984 that in time made it much easier to receive SSDI benefits and keep receiving them until retirement. With these changes, SSDI receipt has steadily increased, particularly since 1989, and SSI receipt among adults has also grown without interruption.
We can also use the March CPS to see how the increase in men reporting disabilities is related to the decline in working-age-male labor-force participation. I estimate that the rise in disability accounted for about 35 percent of the decline. That was over twice the fraction of the decline accounted for by increases in the shares of men who keep house and take care of a family, who go to school, or who are retired, which each explained about 15 percent of the decline. (Various other reasons for being out of the labor force accounted for the remainder of the drop.)
Richard Burkhauser and Mary Daly, of Cornell University and the Federal Reserve Bank of San Francisco, respectively, have shown that a rising share of adults are receiving federal disability payments, from either SSDI or SSI. This increase in the disability rolls has not corresponded to a deterioration in health status. Rather, Burkhauser and Daly show how legislative and administrative changes have made it easier to qualify for benefits, while incentives for employers to accommodate employees with work limitations rather than pointing them to federal disability programs have remained low.
To be sure, the growth of disability rolls may reflect weak demand for workers with limited skills. But this possibility ignores the fact that, as shown above, falling labor-force participation among men results nearly entirely from an increase in those who say they do not want a job. In the March CPS, just 14 percent of working-age men who were out of the labor force in 2013 and also had done no work in 2012 said that an inability to find work was what had kept them from working the previous year. That was the least common response given, behind not only disability (20 percent) and retirement (19 percent) but also keeping house and taking care of family (20 percent) and going to school (23 percent).
Moreover, the last time the weakness of the economy was used to argue against safety-net reforms was in the 1990s, during the welfare-reform debate. As things turned out, child poverty and poverty among single-parent families actually fell after welfare reform. The strength of the late-1990s economy was a lucky break, but since then poverty has remained lower than its pre-welfare-reform levels when measures that correct shortcomings of the official poverty rate are consulted (benefits from most of the big anti-poverty programs, including food stamps, Medicaid, and the Earned Income Tax Credit, are not counted as income in the official measure, and when the Census Bureau updates the poverty line each year for increases in the cost of living, it does so using an adjustment that overstates inflation). Increases in child poverty during the 2001 recession and the Great Recession were more modest than those in the early-1980s and early-1990s recessions. There is no reason to think that reforms to SSDI and SSI that include tougher eligibility requirements, as well as greater rewards for working and sanctions for not working, would not similarly benefit less-skilled men who are able to work (and who would have worked in the past). As was true with welfare reform, it should be possible to help them do so while retaining an adequate safety net for those who cannot work.
Experimentation with disability reforms at the state level would provide invaluable evidence about whether rising disability rolls primarily reflect a problem with the demand for labor or with the supply of it. What is clear, however, is that falling labor-force participation by itself should not be taken as an indicator of labor-market weakness.
– Mr. Winship is the Walter B. Wriston Fellow at the Manhattan Institute.