The Mystery of the Missing Workers, Explained

(Bloomberg Businessweek) -- The U.S. economy is in the midst of an historic comeback. But it’s happening with the lowest rate of labor force participation in more than four decades and a record number of unfilled jobs. It leaves economists, policymakers, and investors wondering: Where have all the workers gone?

At the height of the pandemic more than 23 million Americans were unemployed. Since then about half of those have found work, but the labor market remains almost 7 million jobs short of where it was before the initial lockdowns. Friday’s jobs report is expected to show that the U.S. added about 875,000 in July, the largest gain since August of last year. But that won’t do much to budge the labor force participation rate—a measure of the share of working-age Americans who are employed or looking for work—which has been stuck near its lowest level since the 1970s for almost a year.

There are temporary factors related to Covid‑19 that are holding back the jobs recovery, such as enhanced federal unemployment benefits, reduced availability of child care, and worries about the highly infectious delta variant—though some of these will dissipate in the coming months. When the dust settles, U.S. businesses and policymakers will have to grapple with longer-term shifts, including a shrinking population of workers and the adoption of technologies that are making some jobs redundant. Many of these trends predated the pandemic but have since sped up. “Labor force participation has basically been falling monotonically—it’s pretty much been rotating around a downward trend for 30, 40 years. That accelerated a lot during the pandemic,” says Marcus Casey, an associate professor of economics at the University of Illinois at Chicago.

Economists had already predicted that a shrinking labor pool would act as a permanent drag on economic growth—the “secular stagnation” that Larry Summers warned about before the pandemic—though a recent technologically assisted uptick in productivity will blunt some of the effects, provided it’s sustained.

The Covid crisis may end up paring back the size of the U.S. labor force further. Workers who are sidelined, whether by layoffs, disability, or school closures, may find it difficult or impossible to reenter the job market as their skills lapse. One troubling indicator: The number of Americans unemployed for at least a year reached 2.9 million in June, which is equal to about 29% of all the jobless.

“We lag all of our peers in labor force participation now, which is not where we want to be as a country,” Federal Reserve Chair Jerome Powell said at a Senate banking committee hearing on July 15. “We need to work as a society to make sure people find their way back into the labor force even if they can’t find their way back into their old job.”

What follows is a deeper dive into the powerful forces reshaping the U.S. labor force.

● Demographics

The working-age population—defined as those age 15 to 64—declined in 2019 for the first time in decades, then again in 2020. Blame it on the boomers. While the oldest of Americans born between 1946 and 1964 reached retirement age a decade ago, members of the generation exited the workforce at a faster rate during the pandemic. Boomer retirements more than doubled in 2020 from the previous year, according to an analysis from the Pew Research Center. Some quit work sooner than planned, taking advantage of surging stock prices and home values; others did so under duress, having lost jobs in the recession and facing little prospect of finding employment again. Powell has said early retirements are one reason companies are having trouble finding qualified workers.

“These are older workers. These are people who as a demographic really shaped the labor market as we know it,” says Hannah Grieser, marketing manager at labor market analytics firm Emsi Burning Glass. “They’re people with decades of knowledge, decades of experience, and we’re not seeing the up-and-coming generation that would be replacing them willing to work the same number of hours, willing to take the same job,” she says. “That’s going to have a really potentially detrimental effect on economic recovery if that high-production, high-capacity, highly experienced group of people is out.”

● Automation

Economic downturns have a habit of accelerating profound changes in the workplace. The clearest evidence is that, since at least the 1990s, employment growth hasn’t kept up with growth in gross domestic product in the years immediately following a recession. A 2012 paper published by the National Bureau of Economic Research found that 88% of the “routine”—or easily automated—jobs lost in the U.S. since the 1980s disappeared within 12 months of an economic slump.

A telltale sign this is happening again is that self-checkout registers, touchscreen kiosks, and menus displaying QR codes are becoming an ever more common sight at supermarkets, drugstore chains, and restaurants. Concerns about Covid contagion have incentivized businesses to ramp up investments in hardware and software that cut down on interactions between employees and customers. According to a research note from Oxford Economics, 45% of the 7 million jobs the U.S. was still missing as of June are vulnerable to automation, led by food service, retail sales, and manufacturing. “The technology was available 10, 15 years ago already, but it wasn’t adopted, and now it’s been adopted,” says Stefania Albanesi, an economics professor at the University of Pittsburgh. “It’s unlikely that we’ll just go back to how things were before.”

Powell issued the same warning in his remarks to senators last month. “We began hearing very early in the recovery period that companies were looking at ways to use technology more aggressively,” said the Fed chair. “You’ll see more technology and maybe fewer people.”

● Drug addiction

The pandemic has reversed hard-won progress in the fight against another epidemic that had been quietly ripping through the U.S. workforce since at least the mid-1990s. Drug overdose deaths jumped 30% in 2020, to a record 92,183, according to the Centers for Disease Control and Prevention; about three-quarters were a result of opioids.

Economic hardship, forced isolation, and interruptions to health and social services all contributed to the increase. Reverting to a trend that had seen opioid deaths begin to plateau in 2018 is vital. The authors of a May 2018 research paper published by the Federal Reserve Bank of Cleveland estimated that prescription opioids accounted for 44% of the decrease in men’s labor force participation observed since 2001.

“We hear all the time from folks that you have people who are capable and apply, and when they get to the drug-screen portion, they don’t pass,” Beth Rhinehart, head of the Chamber of Commerce in Bristol, a city of 50,000 people that straddles the border between Tennessee and Virginia, said in May. The area once had plentiful jobs in agriculture, mining, and steel but now relies mostly on tourism (Bristol calls itself the birthplace of country music). “It certainly does kick a lot of people out of a lot of jobs,” Rhinehart said. “Our businesses need warm bodies right now.”

Biden proposed more than $10 billion to combat the opioid epidemic in his fiscal 2022 budget, including funds for medical treatment and recovery programs.

● Child Care

Millions of parents left the labor market early in the pandemic when schools and day-care centers closed. Many returned as elementary schools reopened, and more are expected to go back to work in September after the summer break. But for women in particular, Covid has fundamentally shifted the balance between work and child care, perhaps in a lasting way. The rate of workforce participation for women in June was 56.2%, well below this century’s high-water mark of 60.3%. “Moms came home more than dads to take care of kids, and I think we’re going to see that some of those people that dropped out realized: ‘You know what? This new way of life, we can get by like this,’ ” says Grieser of Emsi Burning Glass.

In some parts of the country, parents of children who aren’t yet school-age face a discouraging new normal. “If the cost of child care is going to rise even faster than it had been before the pandemic, especially because you have a lot of families that relocated out of the cities and into suburban areas, I think that could play a big role in suppressing the willingness to jump back into the labor market for relatively low wages,” says Casey, the professor in Chicago. “You’re looking at your budget, saying: ‘Do we need to put $2,000 back on our balance sheet?’ ”

Senate Democrats have proposed a $3.5 trillion social spending package, which includes paid family leave and child-care investments, but its fate remains unclear. “If we continue to lack the kinds of care infrastructure that we desperately need to have robust participation in the workforce, then we shouldn’t be surprised if those numbers don’t increase at the level that they need to,” says Wendy Chun-Hoon, director of the Women’s Bureau at the U.S. Department of Labor. —With Katia Dmitrieva
 
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