- Jobs & Skills
Why Labor Force Participation Fell During The RecessionSeptember 12, 2012
James Sherk, a senior policy analyst in labor economics for The Heritage Foundation, discusses his views on why labor force participation has fallen during the recession.
Unemployment numbers, demographic changes and other societal factors have undoubtedly contributed to what some call a slow post-recession recovery. James Sherk, however, argues that government responses to job creation and unemployment “have been largely ineffective.”
In a discussion paper, Sherk, a senior policy analyst in labor economics for The Heritage Foundation, argues that Congress should “reduce the tax and regulatory burden it imposes on businesses to encourage hiring and stop the fall in labor force participation” instead of voting for vast subsidies and public works programs.
The drop in unemployment since 2009, he states, results from those who are not looking for work not counting as unemployed. While retiring baby boomers dropping out of the labor force account for some of the decrease, Sherk argues the unemployment figures remain staggering because of “millions more people going on disability insurance or attending school.”
In summary, the paper presents the following key points:
- The American economy is experiencing the slowest recovery in 70 years. In addition to persistently high unemployment, labor force participation has fallen sharply since the recession began in December 2007.
- Today, nearly 5 million fewer Americans are working or looking for work. This drop in labor force participation accounts for virtually the entire reduction of the unemployment rate since 2009—those not looking for work do not count as unemployed.
- Demographics changes—such as retiring baby boomers—explain one-fifth of the decrease in labor force participation.
- Two factors account for the rest of the drop: more people are collecting disability benefits and more are studying in school. Both factors reflect the difficulty of finding work. Fully 6 percent of U.S. adults are now on disability insurance.
- Job creation fell sharply after the recession began, and has not recovered. The government’s response has been largely ineffective. Instead of voting for vast subsidies and public works programs, Congress should reduce the tax and regulatory burden on businesses.