Five Studies: Should We Care If People Aren’t Working?

With Baby Boomers retiring, our focus should be on giving workers choice and agency—even if that means fewer full-time workers.
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In September, the labor force participation rate—the percentage of Americans ages 16 and up who are either working or looking for a job—hit a 38-year low, at just 62.4 percent. This worries a lot of people for a lot of different reasons. Fewer Americans in the workforce means lower economic growth. It’s also likely to leave workers with less leverage to demand higher pay. And the people who aren’t working may be losing out on the benefits of mental stimulation and social contact that a job provides.

But, when we look beyond the knee-jerk assumption that more jobs are always better, the decline in work raises deeper questions. Are the things we do for money always the best use of our time? How should we balance the value of paid work compared with leisure time, education, and time spent taking care of our homes and children? If being without a job seems like a catastrophe, is it because we value work or because of the stigma attached to unemployment?

Research on jobs, and joblessness, shows that the decline in the labor force has a lot to do with larger demographic forces. But it’s also about tradeoffs in the ways we spend our time. And if not being able to find a job makes people miserable—which it often does—there may be better solutions than simply trying to funnel more and more working hours into the economy.

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THE RETIREMENT OF THE BABY BOOMERS EXPLAINS A LOT

The labor force participation rate hit its highest point ever—67.3 percent—in early 2000. Twelve years later, when some economists from the Chicago Federal Reserve ran the numbers, it had already fallen to 64 percent. This was partly a product of macroeconomic changes: Hiring had stayed weak for years following the Great Recession. Also, the participation rate for working-age men with only a high school diploma dropped from more than 95 percent in 1987 to just under 90 percent in 2012. The numbers suggest that either these men have become less willing to work or there are now fewer available jobs that they find worth doing.

But the researchers found that almost half of this decline was due to predictable demographic factors. The aging of the Baby Boomer generation means that a lot of the people leaving the labor force are simply retiring. At the other end of the age spectrum, many more teenagers and young adults are staying in school. Since the number of retirees and students continue to grow, this study projects a continuing decline in labor force participation for years to come.

—"Explaining the Decline in the U.S. Labor Force Participation Rate," Aaronson, D., Davis, J., Hu, L. Chicago Fed Letter, 2012.

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THE HISTORY OF WOMEN'S ENTRY INTO THE LABOR FORCE SUGGESTS THAT RATE OF EMPLOYMENT DOESN'T ALWAYS TRACK WITH ECONOMIC GROWTH

If the current 62.4 percent participation rate looks low by recent standards, zooming out a bit provides a different perspective. From 1948 to 1966, the rate held relatively steady at around 59 percent. Of course, the big change between 1966 and 2000 was a large influx of women into the labor force. But in this paper, James Bullard, CEO of the Federal Reserve Bank of St. Louis, points out that back in the '60s, we didn’t complain about the low labor force participation rate. In fact, the economy grew impressively in those years.

“Evidently, low labor force participation does not equate with weak economic growth,” Bullard writes. “Surely this is because the factors driving economic growth differ from those driving labor force participation.”

Bullard also points out that women who joined the labor force in recent decades didn’t just emerge out of the blue. They were making a choice between paid work and spending time on other activities. Bullard writes that we need to look seriously at home production—cooking, housework, childcare, and other unpaid activities that don’t get counted in standard economic measures—to gain a better understanding of the tradeoffs involved in rising or falling labor force participation.

—"The Rise and Fall of Labor Force Participation in the United States," Bullard, J., Federal Reserve Bank of St. Louis Review, 2014.

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THE PSYCHOLOGICAL TOLL OF BEING WITHOUT WORK IS RELATIVE

If we assume that some people who have left the labor force simply can’t find paid work worth doing, how much is this something we should worry about? Part of the answer lies in the psychological impact of being involuntarily out of work. This study of British men and women found that unemployed people are, indeed, less happy than their employed counterparts. That turned out to be true even after accounting for differences in income. But unemployed people were significantly less miserable if they had other unemployed people in their social circles.

The idea here is that norms matter. If you can’t find work while everyone else around you can, that’s a much worse experience than being part of a community where joblessness is a shared condition.

—"Unemployment as a Social Norm: Psychological Evidence From Panel Data," Clark, A. Journal of Labor Economics, 2003.

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AND HAVING CHOICE MATTERS A LOT

People who are out of the labor force voluntarily have a very different experience from those who want a job and can’t find one. This study of new mothers in France compared the psychological well-being of women who had paid jobs with the well-being of those who were unemployed or voluntarily staying home with a baby. After adjusting for a range of other factors, the authors found that the results for stay-at-home and working moms were very close. But those who were involuntarily unemployed were much more distressed.

"Unemployment and Psychological Distress One Year After Childbirth in France," Saurel-Cubizolles, M., Romito, P., Ancel, P., and Lelong, N., Journal of Epidemiology and Community Health, 2000.

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SPREADING THE WORK AROUND MORE EVENLY MIGHT MAKE SENSE

If we’re worried about psychological problems and general inequality due to large swaths of people being without jobs, do we need to add a lot more work to the economy? The example of the Netherlands suggests another way. In the 1980s, more than half of that country was either unemployed or out of the labor force altogether. Through a concentrated effort, driven largely by powerful Dutch labor unions, the country spread the work around, reducing full-time working hours and adding more part-time jobs. For younger and less-skilled workers, it became much easier to find work. At the same time, many married couples moved from a male breadwinner model to having “one and a half” earners, though this still left women typically working much shorter hours than their husbands. The shift came with a drop in wage growth, but the impact wasn’t concentrated on low-wage, less-skilled workers. Instead, Dutch workers agreed to a general tradeoff of money for time. If we, in America, wanted to, we could probably do the same.

—"The First Part-Time Economy in the World: a Model to Be Followed?" Visser, J., Journal of European Social Policy, 2002.

Five Studies is Pacific Standard’s biweekly column that identifies and analyzes the best academic research to deliver new insights on human behavior.

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