Prime-age workers are flooding back into the workforce. Older workers are staying home.
The US labor market remains robust after largely recovering from the pandemic, though the makeup of that labor force has changed in significant ways.
The overall US labor force participation rate is at 62.6% — the highest since March 2020. Furthermore, the labor force participation of prime-age workers — those between the ages of 25-54 — is at 83.3%, equal to that of January 2020 and the highest rate since September 2008.
"The labor market surprisingly remains hot and tight as indicated by a trifecta of strength reported in the three key categories in April — employment, the unemployment rate, and average hourly earnings," Nationwide Chief Economist Kathy Bostjancic stated after Friday's job report.
At the same time, not everyone is flooding back into the labor market: The labor force participation rate for older workers — those ages 55 and up — is at 38.4% as of April 2023, down from 40.2% in January 2020.
Katharine Abraham, a former Bureau of Labor Statistics (BLS) commissioner and current faculty member at the University of Maryland, highlighted how there's also nuance in that demographic.
"At older ages, it’s the most educated people who are less likely to be working,” Abraham told Yahoo Finance. "It’s not the people without a college degree. It's the people with a college degree or a graduate degree who are less likely to be working."
Abraham associated the trend with having more financial flexibility, particularly in stressful times like the coronavirus pandemic.
“If the world has gotten more threatening and there’s reasons not to want to be going into work, they can make that choice,” she said.
At the same time, there are still millions of jobs available: As of April 2023, there were 5.8 million unemployed workers and 9.6 million job openings.
Some demographics can't say, 'I'm not going to go into work'
Though COVID cases have dramatically reduced since the height of the pandemic in 2020 and 2021, there is still residual fear among workers, particularly those over the age of 55, of being exposed to the virus on the job.
According to recent research from the Brookings Institution co-authored by Abraham, Hispanics/Latinos and Black Americans were significantly more likely to cite fear of COVID as a reason for being out of the labor force than their white counterparts.
"Part of that is the larger share of Hispanics and non-Hispanic Blacks who are working in occupations where they have a closer proximity to people, so a closer proximity to potentially catching COVID," Lea Rendell, a PhD candidate at the University of Maryland and co-author of the Brookings paper, told Yahoo Finance. "They may have more fear of COVID because they have more exposure in their daily work."
This was the case in 2020 and 2021 — 41.2% of front-line workers were from communities of color.
Despite these concerns over COVID, these communities have higher labor force participation rates. In March 2023, Hispanic/Latino labor force participation was at 66.8% and Black labor force participation stood at 63% compared to 62.3% for white individuals, according to FRED Economic Data.
"I think that gets back to [the fact] that people who have financial means may be able to make different choices than people who don’t," Abraham said. "We know that on average, whites have more resources. Their average levels of wealth are higher than for Blacks and Hispanics. Obviously, there’s a lot of variation within the groups, but as a group, we might think that Blacks are less able to just say, 'I'm not going to go into work.'"
Many of these communities are feeling the direct impact of inflation and overall economic uncertainty — even as the Federal Reserve raises interest rates to try to address the issue.
"The economy's in a real state of flux," Jeff Wenger, senior policy researcher at the RAND Corporation, told Yahoo Finance. "Those interest rates are going up which is reducing housing demand and increasing people’s debt, and people are pulling back on consumption, which is what it was designed to do. That’s going to have spillover effects into employment."
Essentially, this could be something driving individuals back into the labor force.
"Folks who had bolstered savings, that’s starting to eat away because things are just more expensive," Jenna Shrove, executive director of strategic policy at the U.S. Chamber of Commerce, told Yahoo Finance. "And folks who may have retired, some of those retirees have come back because they’re seeing less of a return on what they had saved up or as a part of their 401(k). And dual-income families obviously, as the cost of things increase, they’ve started to re-evaluate that."
Other possible factors
Other potential issues weighing on labor force participation for some demographics include Long COVID, stimulus checks, prioritizing work-life balance, the opioid crisis, and immigration.
According to various estimates, up to 4 million people may be out of the labor force due to Long COVID — the long-term effects of the COVID virus.
However, Abraham’s research indicated that it might not be the main driver.
“When we dug in and looked at the data, our conclusion was there’s something going on here, and it’s not trivial, but it’s not the major impact on the size of the labor force that some of the other research out there has suggested,” she said.
Some politicians, meanwhile, have asserted that stimulus checks are still holding people back from returning to the workforce — even though the last round of stimulus checks was distributed in March 2021.
“The more subtle form of that argument is that at an earlier point in time, the fact that people who remained unemployed could get UI benefits probably did slow down the rate at which they took jobs — not that that’s bad because some of the jobs that were being offered would’ve been really dangerous for people especially who are vulnerable to the effects of COVID,” Abraham said.
By 2022, she added, "those incentive effects" of unemployment benefits were gone, along with the Child Tax Credit, and "what could have remained is that because people had gotten these payments, they were relatively better off than they would have been if they had more money in the bank. And that could have slowed them down from looking for a job even in 2022.”
One trend that has not slowed considerably is the U.S. opioid crisis.
“The opioid epidemic is still in full force,” Wenger said. “That’s ravaging certain communities. Those tend to be more rural communities where there are fewer economic opportunities and higher rates of unemployment already. That’s a difficult challenge.”
According to the latest federal data, “an estimated 79,117 Americans died from drug overdoses between January and September 2022, fewer than the 81,155 people who died during the first nine months of 2021, but still 50% higher than pre-2020 levels.”
“Someone I was speaking to the other day was saying they owned a business in West Virginia, and they couldn’t find workers that could pass the drug tests,” Wenger said. “The people who are applying for these jobs, they want to work, but the screening is such that they literally can’t get hired because they’re showing evidence of drug use.”
Another factor affecting the labor market — that could potentially cause longer-term issues — is slower immigration in recent years.
“We also saw about 1 million fewer college-educated immigrants in the years following the pandemic and during the pandemic because of work closures,” Shrove said. “We can’t continue to welcome global talent that we had historically done when we can’t bring anybody into the United States and we can’t recoup those people either because of the way the immigration laws are set up. We have caps each year on visas that allow them to come to the United States.”
And with Baby Boomers continuing to age out of the workforce, there aren't enough Americans to replace them.
“There’s a sort of general sense underlying a lot of this that demographics are not working in our favor in the labor market,” Wenger said. “This may be in part the long slow boil that we’re feeling where firms are feeling pressure … We’re just not growing as a country in terms of our population absent immigration.”
Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at firstname.lastname@example.org.
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