KY Policy Blog

Address Declining Workforce through Job Creation and Work Supports

By Jason Bailey
July 11, 2016

The administration’s proposal to change Medicaid is framed around increasing workforce participation — making it harder for people to get public benefits, it is assumed, will somehow make them more likely to seek work. But as a recent report by the Council of Economic Advisors shows, the gradual decline in the workforce — especially among working age men — can be linked primarily to a loss of decent jobs accessible to less-educated workers as well as the absence of a variety of supports that remove barriers to employment.

Over the past 60 years, there has been a steady decline in the share of U. S. prime working age men (ages 25 to 54) who are participating in the labor force, a rate that has fallen from 98 percent in 1954 to 88 percent today and is lower than in most other advanced countries.

A lack of labor force participation is not necessarily a bad thing. People can be out of the labor force to pursue education, to care for children or ailing family members, or to retire. But as the report outlines, the decline in workforce participation for prime age men has been associated with more hardship — nearly 36 percent of these men lived in poverty in 2014, an increase from 28 percent in 1968.

The problem of low and declining labor force participation rates is particularly serious in Kentucky. Our total prime age labor force participation rate is the second-lowest among states — behind only West Virginia. Our male labor force participation rate is third from the bottom among states.

Although working age male labor force participation rates have declined among all education groups, losses are largest among men with the lowest levels of education.

Men Choosing Not to Work Can’t Explain Decline

The report reviews factors that could explain the decline and rejects alternative sources of income and other responsibilities as major causes of men leaving the labor force. Income from spouses working doesn’t explain the trend, in part because those men out of the labor force are increasingly less likely to have a working spouse. Men outside the labor force don’t have growing responsibilities for household work, the report suggests, and participation rates have fallen more for men without children. And being out of the labor force isn’t associated with these men pursuing education.

Importantly, the report also rejects the theory that access to public assistance (men choosing not to work because they receive benefits instead) can explain the decline. While the percentage of prime age men receiving disability insurance has increased, the rise is not nearly enough to explain the decline in the workforce. At most it explains between 0.3 and 0.5 percentage points of the 7.5 percentage point decline in labor force participation since 1967.

More generally, the myth of welfare dependence isn’t supported by the data. Public assistance programs like the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance to Needy Families (TANF) have become increasingly difficult to access for this group of Americans and are a declining source of their income.

And as the report explains, if more men were voluntarily choosing to stay out of the labor market while jobs are available, we’d expect to see wages rising for similar workers as the decrease in labor supply means greater competition among employers for those who are working. But inflation-adjusted wages for this group have been decreasing over time.

Job Loss and a Lack of Work Supports Play Major Role

A primary factor explaining the decline, the report suggests, is the elimination of decent-paying jobs traditionally available to men with lower levels of education, including manufacturing, construction and mining. Research suggests  when these middle-skill jobs are eliminated, many displaced workers don’t move into low-skill or high-skill jobs. Low and even declining real wages at the bottom may be a disincentive to participate in the labor market. And there’s evidence big economic shocks like the Great Recession can contribute to lasting reductions in the labor force. In general, the fact the economy has been short of full employment most of the last few decades means a scarcity of jobs and little pressure on wages to go up.

Adding to the problem is the lack of policies to help promote participation compared to many other advanced countries. These include access to job training, paid leave that allows workers keep a job when family or personal issues arise and policies that lift wages at the bottom to increase the returns to employment. Also contributing to the problem are high levels of incarceration in the United States (and Kentucky), which create a large population of formerly imprisoned individuals who face discrimination in the job market and lack the personal networks needed to obtain work, among other barriers.

Policies to Stimulate Job Growth and Support Workers Can Help

There are ways forward that would both improve the lives of many low-income men and families and help create a stronger economy overall, the report notes.

Policies that stimulate stronger economic growth by addressing the lack of demand in the economy will create more jobs these men can access and help wages grow again. Key steps include investing in infrastructure needs across the country, which would employ many low-skilled men; bringing back the subsidized employment program that helped encourage employers to hire workers they otherwise wouldn’t have during the recession; and strengthening programs like unemployment insurance and SNAP that help economies bounce back during downturns.

We also need policies that make labor markets more supportive of workers’ participation, including:

  • Better aligning community college and training programs with in-demand jobs, and making such programs affordable;
  • Reforming unemployment insurance to provide incentives for employers to reduce hours rather than lay off workers during downturns, keeping more workers attached to their jobs;
  • Automatically allowing more weeks of unemployment insurance during recessions, which keeps workers in the labor market because they must engage in job search to continue receiving benefits;
  • Providing wage insurance, which for a period of time replaces a portion of lost wages for workers who are laid off and take lower paid jobs;
  • Expanding the Earned Income Tax Credit (EITC) for low-income childless workers, a program that has been showed to increase participation;
  • Improve the quality of job opportunities by increasing the minimum wage and strengthening collective bargaining;
  • Helping address work-life balance by expanding access to paid family leave, paid sick days and child care assistance;
  • Passing criminal justice reforms like reducing mandatory minimum sentencing, improving reentry programs and enacting ban the box legislation.

While policies to create more jobs and increase support for workers can help, taking away health coverage threatens to make the problem worse. Limiting access to preventive and primary care can reduce health, decreasing workforce participation further and driving more workers and their families into poverty.

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