Collapsing Labor Force Participation: A Secular Trend

by Constantin Gurdgiev, TrueEconomics.Blogspot.in

For those of you following this blog this would be a familiar sight: I have been worrying about the underlying structure of the U.S. labor markets for some time now. The ongoing recovery appears to be relatively robust in terms of headline figures, e.g. GDP growth rates and declining continued unemployment claims. But in reality, it has been nothing but the return to trends that persisted before the pandemic - trends that are extremely worrying.

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I covered the fact that longer term unemployment has now gone through the roof: Long-Term Unemployment Is Headed The Wrong Way. And beyond this, there is a bigger problem of historically low levels of labor force participation. We are witnessing a massive pull-away within the skills distribution in the U.S. economy: there are shortages of skilled labor, including in manufacturing, and there is massive outflow of people from the labor markets in lower skills groups.

Just look at the absolute disaster of the 'recovery' when it comes to people who have left the workforce altogether:

gurdgiev.employment.2021.apr.17.fig.01

And consider the gender mix in this:

1. Female labor force participation is down:

gurdgiev.employment.2021.apr.17.fig.02

2. Male participation has collapsed:

gurdgiev.employment.2021.apr.17.fig.03

The above appears to show more benign trend in female labor force participation trend than in male, and... here comes the kicker: women labor force participation currently sits around the levels comparable to 1987; men - at around ... well... never.

gurdgiev.employment.2021.apr.17.fig.04

The above table puts matters into perspective: the gap between the pandemic period and prior high participation period is almost 5 times larger for men than for women. But... the gap between women and men participation rates in the pandemic period and pre-pandemic period is much smaller: at roughly 48% higher for men than for women. For the latest data point (March 2021) the latter gap is roughly 80%. In other words, the dynamics in terms of labor force participation for women are becoming much less benign, relative to men. than they were during the pre-pandemic period.

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