Where Have The Prime-Age Workers Gone?
Unlike a mathematical equation, where a calculation leads to a single correct answer, economic numbers don’t always point to clear answers.
The accompanying chart from the Vermont Dept. of Labor shows the state's job growth by age group from September 2011 to March of this year.*
One striking feature is the only age group that saw an increase in jobs over the period is workers 54 and older.
Even more striking: Prime-age workers, ages 25 to 54, actually saw a decline.
As is often the case, Vermont trends mirror national trends.
This article in The Economist includes a chart showing nationwide job trends for the same age groups over roughly the same period of time.
According to the article, the chart illustrates both a demographic trend – the aging of the American workforce – and an economic trend, “the difficulty that prime-aged workers – especially men without college education – have finding jobs.”
“What you see in Vermont is a sharper version of a national trend,” says Peter Hans Matthews, chair of the Middlebury College Department of Economics.
However, Matthews says the statistics don’t support the idea that employers are only hiring older workers.
“The thing one doesn’t want to take away from the picture is that somehow firms are engaging in an age favoritism, or that there’s a sudden increase in demand for Pinto repairmen,” says Matthews.
The chart might also lead to the conclusion that job growth is declining in the 25-54 age group because the population is aging and there are fewer prime-age workers.
“That’s a reasonable guess,” says Matthews, but, “it turns out the be a wrong guess.”
Matthews says the aging trend among workers is a reality, but it’s too slow to explain the changes indicated in chart.
"The thing one doesn't want to take away from the picture is ... there's a sudden increase in demand for Pinto repairmen." -Middlebury Economist Peter Hans Matthews
Instead, he says, labor economists are focusing on the decline in labor force participation among prime-age workers as based on two data points:
Employment ratio (the percentage of a particular age group that is employed).
Labor force participation rate (the percentage of the labor force that is made up of a particular age group).
“The really surprising thing, when you look at the last four or five years is that the employment rate and the labor force participation rate for prime-age workers fell dramatically at the start of the recession and never recovered,” says Matthews.
In other words, prime-age workers have been leaving the labor force while older workers have stayed in.
The flight of 25-54 year olds from the labor force has puzzled economists, but the most widely held belief is that they’ve become discouraged and given up on finding work due to the lack of robust job creation since the recession.
If that’s the case, many believe stronger job growth should begin to bend the curve.
Recently, Federal Reserve Chair Janet Yellen pointed to several reasons for the decline in the labor force, including retirement and worker discouragement.
“Of these, greater worker discouragement is most directly the result of a weak labor market, “ said Yellen. “So we could reasonably expect further increases in labor demand to pull a sizable share of discouraged workers back into the workforce."
Mathews agrees. “I think it’s fair to say that more robust job growth would probably draw some of those 25 to 55 year olds back into the labor force.”
If that’s true recent signs of a recovering labor force in Vermont could be encouraging for prime- age workers who have given up job hunting.
Matthews says on the margins of the discussion about labor force trends are concerns about the accuracy of information.
Conclusions are only as good as the data they are based on. “What we know about labor markets is a lot ‘noisier’ than it used to be, simply because people don’t respond to surveys the way they used to,” Matthews says. “It’s fair to say that we really don’t know as much as we should or want to know.”
University of Vermont economist Art Woolf also cautions about the margin of error inherent in data that comes from taking Vermont’s relatively small numbers and carving them into even smaller samples.
The legislature’s economist Tom Kavet agrees.
“It’s not always easy to get a read at a state level,” he says.
Kavet says the Vermont chart would be useful if the state information went back further (it doesn’t) and tracked trends from before the recession.
“What you don’t see is the extent to which there was a decline in employment by these various age cohorts,” says Kavet.
Still, Woolf says, “I can buy the broad trend” the chart indicates.
He also points to differences within the prime 25-54 age group and suggests that for a variety of reasons, those at the higher end of the group may not return to the labor force even if there is stronger job growth.
Woolf says they may find they don’t have skills suited to the jobs now available, or they may be convinced the jobs they’re able to get don’t pay enough.
Those ideas are reinforced in a recent paper by the Federal Reserve Bank of Boston.
It observes that, “Since 1980 that the vast majority (about 80 percent) of 25–44 year-olds who exit the labor force during recessions or early recovery periods are working again within four years. Only about 40 percent of 45–54 year-olds who exit the labor force re-enter over the same time horizon.”
The paper also analyzes the education and work histories of those workers 55 and under who left the labor force.
The paper says the flight from the labor force has been led by those in less skilled, lower paying jobs, not skilled workers retiring early for lack of a job.
Another factor that supports the argument that some working age people may never return to the labor force is the dramatic rise in the number of people on disability.
As NPR and others have reported, the federal Supplemental Security Income (SSI) program is acting as a safety net for some who are unemployed, because applications rise and fall with the jobless rate.
Woolf says Vermont has followed the nation in the dramatic increase in the number of disabled workers. There are other factors affecting these increases, most notably an aging workforce – but, again, demographics alone can't explain the trend.
*The gap in the chart reflect a month where no data was available.