Who is Missing from the Labor Force?

As we celebrate the achievement of American workers on this Labor Day, we shouldn’t forget those who are left out of the labor market.

The labor force participation rate, which is the percent of the civilian population 16 years and over who have a job or are looking for one, hasn’t been lower since 1978.

In July 2017, the labor force participation rate was 62.9 percent — down from a peak of 67.3 in March 2000.

The Federal Reserve Bank of Atlanta, which analyzes the changes in labor force at its Center for Human Capital Studies, concluded that the retiring population explains about half of the 3-percentage point decline in the labor force participation rate since 2008.

The Atlanta Fed also consider the reasons that people are not in the labor force, which varies by age, education, race and gender.

Not surprisingly, a higher percentage of people younger than 25 are not in the labor force because they are in school full-time, while many people (mainly women) 25 to 40 years old are taking care of the family. Disability or illness increases as a reason for not being in the labor force for the 45 to 60 age group. After age 60, retirement is the leading reason why individuals are not in the labor force.

One particular group not in the labor force includes those “hard-to-employ” people with barriers to work.

Kevin Corinth wrote an article in July when he was a research fellow at the American Enterprise Institute that digs deeper into why those individuals are not participating in the labor force and estimates the number of people not working because they face barriers.

He estimated that in 2015, 14.5 million adults between 25 and 54 had incomes below 200 percent of the poverty line and at least one of the following barriers to work:

• Homelessness;
• Serious mental illness;
• Substance abuse; or
• Arrested and booked for breaking the law.

Not all people with barriers would be willing to work if offered a job, so Corinth used information on peers with similar demographic characteristics and education but who do not face barriers to tease out the percentage with barriers who would work.

This method resulted in an estimate of 2 million people who potentially would be willing to work. If those people are successfully integrated into the labor market, they can increase the national labor force participation by 1.2 percentage points.

Corinth points to social enterprises as a solution to help this population, particularly those with recent experiences of homelessness, serious mental illness, and those with multiple barriers, which makes up 1.6 million adults where the gap between the actual and predicted work rate is largest.

These enterprises offer on-the-job training to people that are hard-to-employ with the goal of transitioning them into conventional employment.

When we look at macro-level statistics, it’s easy to lose sight of the human side of those numbers.

This Labor Day might be a good time to think differently about those who are not participating in the labor force as well as the social enterprises that help bring these individuals back into the labor force.