by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Why are fewer prime-age Americans in the workforce? Many popular explanations attribute Americans’ declining labor force participation to declining wages, technological change, and international trade. A new report from Joint Economic Committee Republicans’ Social Capital Project finds that these forces cannot fully explain increasing inactivity among able-bodied prime-age Americans.
Instead, many would-be workers are voluntarily disconnected from work, and government programs and policies have likely made work less attractive for these Americans. Beyond a paycheck, employment is also an important source of social capital that provides material and immaterial benefits to personal well-being. By evaluating the incentives workers face, the report recommends a number of policy reforms to lift barriers, remove disincentives, and increase the attractiveness of work.
The U.S. has witnessed an unprecedented rise in disconnected prime-age workers over time. For men, this trend goes back half a century, with their labor force participation rate falling from over 97 percent in 1955 to 89 percent before the pandemic. For women, receding workforce participation began in the last two decades.
Many popular explanations blame declining wages, technological change, and international trade. However, key evidence indicates these forces have not made it significantly more difficult for workers to find well-paying jobs.
Examining worker preferences and their incentives provides a better explanation. The decline in prime-age labor force participation has been mostly voluntary. Only 12 percent of inactive, prime-age, able-bodied men said they wanted a job or were open to work. Among men who are inactive for reasons other than disability, retirement, education, or homemaking, 41 percent personally receive government assistance.
Government policies may be tipping the scales away from work. A growing number of Americans receive government assistance, which has been shown to lower employment. Regulations can also disproportionately harm low-skilled workers by creating unnecessary barriers to economic opportunity.