Powell on labor force trends

Today's WP summarizes FRB chair Jerome Powell's analysis of why the labor force participation rate of prime age adults has (1) declined over the last 60 years and (2) become lower than the rate in most other well-to-do nations.  This is an important issue for the prospects for continued economic growth.    With the unemployment rate at all time lows and job vacancies exceeding the number of job seekers, future gains in GDP are contingent on more people entering the labor force.

In the 1960s, virtually all men between the ages of 25 and 54 worked or were looking for work.  Today that rate has gone down to 89 percent.  Labor force participation hinges on the rewards for working versus the value of not working.  One might argue that the rewards for not working have risen, leading to more labor force dropouts.  But single men do not qualify for many income maintenance programs and the inflation-adjusted payout from these programs has declined over the last 40 years.  Also, income maintenance programs are far more generous in Western Europe than the US.

Powell points to two trends that have driven more men to drop out of the labor force: education and opioids.  Today's jobs require more skills than those one or two generations ago, but education levels have not kept up.  Research on the impact of  opioids is just getting geared up.  To date it shows a correlation between low (high) labor force participation with high (low) opioid use across communities.  This begs the question of which came first.

To this list I would add two more items: a declining marriage rate and video games.  Married men are more economically active and make higher wages than unmarried men, although again establishing cause and effect here is challenging as women are less likely to marry men who are unlikely to contribute to a household's economic well-being.  As for video games, research shows they provide a low cost mechanism for passing time with some social interaction that increases the payoff for not working.