In my last blog of September 15, Part 1 analysis inovlved a one-decade look-back at labor force and jobs, focusing in on declining labor force participation pre- and post-pandemic. For those who missed the introductory overview of Part 1, you might click here to see the earlier post.

Now with Part 2, we dive a bit deeper. Topics covered include:

A state-by-state overview of labor force participation — currently and over the last decade,
followed by consideration of participation rates by
Age of adult population and other pertinent characteristics as for sex, race/ethnicity and children at home,
ending with
The elephant outside the room
and what to do??

Part 1 focused on the question of getting labor force participation rates back up to where they were a decade ago. This Part 2 posts observes that, even if successful, recovery of labor force participation likely will solve only about 25-30% of the current labor shortage. And the even more unwelcome news is that as long as the workforce supply gap persists, inflationary pressures will also continue.

Let’s get started.

State-by-State Review

This state-by-state review starts with a mapped look at comparative labor force participation rates as of 2021. As shown, Nebraska comes in as #1 — with a labor force participation rate estimated at 70.2% of working age adults age 16+. Other states in the top 5 are North Dakota, South Dakota, Colorado and Utah. respectively. Rocky Mountain and plains states leading the way.

At the bottom of the list is West Virginia with a labor force participation rate of less than 55% — followed by Mississippi, Alabama, Arkansas, and New Mexico. Interestingly, the states both at the top and bottom rungs of workforce participation tend to be rural or with large rural expanses.

Perhaps more noteworthy is a second pass at the map — this time for a comparison of changes in labor force participation from before the pandemic (2019) to recent recovery experience (2021). Somewhat surprisingly, Oregon comes in #1 — increasing its labor force participation rate by 0.7% points from 2019-21. Only one other state — Alaska — has experienced increasing labor force participation over this pre- to recovering pandemic period.

Forty-eight states have experienced declining labor force participation since 2019. Vermont comes in 50th with a 5.9% point decline in labor force participation in just two years — followed by Connecticut, Nevada, Iowa and Virginia also losing significant workforce participation. There appears to be no immediately clear sense of what, if any, characteristics that these states share in common that would explain their uniformly weak recovery experience.

Labor Force Participation by Age

We now take on perhaps the most intriguing characterization of labor force participation — by age of worker over the full period of January 2012 - August 2022. At first blush, there is little that would seem out of the ordinary as depicted by the following graph.

Not surprisingly, the three age cohorts with, by far, the highest labor force participation rates are those in career building age categories of 25-34, 35-44 and 45-54 — all with participation rates in the range of about 80-85% of the populations in their respective age cohorts.

Those age 55-64 show some dis-attachment from the work force — with workforce participation rates dropping to the 65% +/- range. Entry level workers age 16-24 have yet lower participation rates in the range of 55% (with large proportions still in school).

And not surprisingly, those age 65+ show the least continuing attachment in the range of 20% or lower participation rates. We’ll circle back to this cohort in a moment — for the rest of the story.

All age cohorts experienced some temporary loss of workforce participation during the pandemic but with general recovery thereafter. Although workforce participation for all adults declined by 1.3% points from 2012-22, participation increased for every single age cohort 16 and over — with the greatest increase of 2.1% points over the decade noted for those age 25-34.

How can it be that participation declines for the overall population age 16+ but increases for every age cohort from 16-24 to 65+ (and all those in-between)? The rest of the story answer lies with the outsize cohort of aging and retiring baby boomers. Put succinctly, the number of baby boomers now retiring far outweighs the number of new labor force participants age 16-64.

Other Defining Characteristics?

Before getting to this story’s conclusion and its implications, it is also useful to consider other characteristics of labor force participation — including sex, race/ethnicity and presence or absence of children at home.

Sex & Labor Force Participation

As has long been the case, men continue to have higher rates of labor force participation than women. However, that is changing. Over the 2012-22 period, an average of just under 69% of men age 16+ were in the labor force as compared with close to 57% of women. However, over this period, men’s participation rate declined by 2.4% points while that of women declined by just 0.6% points.

Influence of Race/Ethnicity

With a labor force participation rate of over 66%, Hispanic/Latino adults are the most work oriented, followed by those who identify as White at just under 63% and African American/Black at between 61-62%. Over the course of the last decade, the Black participation rate has increased by 0.7% points — above that of Latinos (up by 0.5% points) and then Whites (for whom participation rates dropped by 2.1% points).

Presence/Absence of Children @ Home

Contrary to what one might expect, households with their own children (under 18) at home tend to have higher rates of labor force participation than those with no children in the household. Over the last decade, labor force participation rates averaged 81% for households with children versus 57% for those with no children at home (likely due in large part to being at or closer to retirement than for those with no children present in the household).

Also surprisingly, parents with children under 6 years of age are almost as likely to be in the workforce as those with older children. In the last decade, labor force participation has increased for households with children while declining for households with no children.

This shift has affected even households with very young children (less than 1 year of age). For example, over the last decade labor force participation rates for women with a youngest child under 1 year has increased by 5.3% points, the most significant change for any of the child/parent indicators tracked by BLS.

The Elephant Just Outside the Room

For the past several decades, the baby boom generation (born between 1946 and 1964) has been the elephant in the room — supporting strong growth in labor force and employment. Now the elephant is leaving the room — with only those born between 1957 and 1964 still at or under 65 years of age.

Those who are over 65 seem to be following in their parents footsteps — with labor force participation rates dropping from 73-74% (for those 65 and under) to 19% or less (for those now over 65 years of age). The boomer elephant is now leaving the room — with generally smaller generational cohorts coming in behind.

The following graph compares changes in the distribution of the nation’s population and labor force over the last decade. As illustrated, persons age 65+ accounted for 73% of the growth in the nation’s population (of those 16 and over) from 2012-22. Despite ensuing dis-attachment of many due to retirements, this senior cohort still accounted for more than one-third (34%) of the U.S. net labor force growth over this last decade. Who’s to fill the gap after boomers move into their 80s (now just four years away for those born in 1946)?

Those age 55-64 (including some younger baby boomers) also accounted for more growth in labor force than in population. And those age 25-44 (largely millennials) have contributed both to added population and even more to the nation’s labor force.

The situation is more challenging for the much smaller Generation X cohort as illustrated by the age 45-54 group on the graph. From 2012-22, both the shares of population and labor force of those age 45-54 declined. And the contribution those at the youngest (16-24) end of the age spectrum has been essentially flat — providing no net added contribution to American workforce over this past decade.

My earlier Part 1 analysis of labor force trends indicates there are about 2.3 million fewer Americans either working or looking for work than would have been the case if labor force participation rates of 2012 were still in place. This Part 2 analysis shows that the challenge is even more intense than just loss of historic rates of labor force participation.

This Part 2 review indicates that America’s labor force increased by about 10.3 million from 2012-22. The number of jobs increased even more dramatically — by 18.8 million — with the difference due primarily to reductions in unemployment to record lows. However, this came at a price. Labor force growth fell short of the job increase by 8.5 million.

With historically low unemployment, the slack in the nation’s workforce is now essentially used up. Going forward, net growth in employment is likely to depend on something more like a 1:1 ratio of labor force to job growth (versus the 0.55:1 ratio) on which the U.S. economy relied over the last decade.

With the previous slack used up coupled with weakened demographics of population aging and resulting slower workforce growth ahead, there are few ready-made solutions on the horizon. So, what to do?

What To Do?

Looking ahead, there appear to be two possible strategic responses to the impending transformation of America’s job engine, either by:

Increasing workforce supply
and/or
Reducing workforce demand

Here are some thoughts as to potential policies or implementation measures that might be employed for each of the two broad strategic approaches considered.

Increasing Workforce Supply

Increasing workforce supply could involve some combination of potential measures including:

Attracting back the estimated 2.3 million workers who appear to have left the labor force over the last decade — both before and during the pandemic — likely involving some combination of measures such as better pay, more flexible work hours and at-home work, supportive child care, health safety protections (as for immuno-compromised), and better articulated opportunities for on-the-job training and career advancement
(though best case, this measure on its own solves only about 25-30% of the labor force/job mismatch).
Increasing birth rates — though it will take a generation (about 20 years) to realize the payoff.
Increasing part-time, contractual and volunteer work opportunity for those preparing to retire — focused both on those currently in the 55-64 and 65+ age cohorts.
Providing more flexible work options for market segments with historically low rates of participation — as for parents with young children
Encouraging in-migration — especially for those bringing skills in short supply into the U.S. and by offering clearer path for longer term stays and citizenship

Strategies for increasing workforce supply offer the best opportunity for success if accompanied by reasonable social and political consensus for continued U.S. population and economic growth with ever greater cultural diversity.

Reducing Workforce Demand

Strategies for reducing workforce demand are dependent on transitioning to a society that can do more with less through measures such as:

Induce recession with increased unemployment as the Federal Reserve is clearly poised to risk — but this is only a short-term (and rather painful) solution for the duration of the economic downturn.
Greatly ramped up investment in automation and robotization — especially for employment sectors involving rote work or lower paid service occupations (offset by new found worker opportunity to upgrade by transitioning to occupations that pay more)
Reducing the accepted work week from the traditional 8 hours/day, 5 days/week schedule — as the benefits made possible by a more affluent society allow opportunities for more time for societal leisure and independent personal pursuits
Parallel adoption of some form of universal basic income (UBI) providing all Americans with a base level of compensation — adequate for day-to-day needs accompanied by incentives whereby working is always more remunerative than not (though if improperly applied this measure could exacerbate employment woes by increasing rather than reducing demand for goods and services)
Simplifying rules-based and means-tested administrative and revenue mechanisms so there is less need for employment bureaucracies and enforcement in both public and private spheres of economic activity
Investing in technology platforms readily accessible in the full range of personal, social and economic pursuits

Strategies for reducing labor demand may prove challenging to achieve widespread public and institutional acceptance. However, if adopted, strategies aimed to right-size the scale of human effort required in a more widely affluent society offer prospective benefits of greater individual, community and cultural choice for generations to come.

Most likely, the strategic mix pursued will involve some combination of supply enhancement and demand reduction measures — involving both market led and regulatory initiatives coupled with trial and error, rewarding and building on what’s demonstrated to work.

The not-so-fortunate reality is that the workforce supply gap is not likely to be solved overnight. As long as it persists, upward inflationary pressure also will continue — independent of actions the Federal Reserve may take in the here and now. All the more reason to begin addressing the longer term labor supply gap — the sooner the better.