Who’s Dropping Out of Labor Force

In a comment to our prior post, Employment Recovery Continues to be Sub-par, Adam notes:

You wrote:  "If there were no slack in the labor market, prospective employees would be entering it in droves, not staying away/dropping out."

I just can’t fathom how people who need jobs would GIVE UP? Stay away from the market and/or drop out? Just totally illogical and counterintuitive. Contrary to Maslow. I can go on and on. I just don’t buy it.

To help answer that question, here’s a view of who is leaving the labor force:

click for larger graphic
Source: Northern Trust


Who’s leaving the Labor Force?  Students, Child Rearing Women, Over-qualified mid-level employees. Who’s joining the labor pool? Babyboomers and Retirees.

Asha Banglore observes:

"Looking at the change in the participation rate by age, chart 3 shows that two age groups (16-24 years of age and 25-34 years of age) posted the largest declines during 2000-2005. The participation rate of the cohort aged 55 and over rose by 4.9 percentage points, which invalidates assumptions about baby boomers retiring in large numbers."

Also noteworthy:

  • Students leaving low wage jobs to go to College or Grad School — and in significant numbers (ages 16-24);
  • Women leaving the labor force for child rearing (25-34);
  • Over qualified employees unwilling to accept much lower paying/benefits positions (35-54);

Census data for college enrollment during 2000-04 shows a 12.5%
increase — that explains the 16-24. Expect them to re-enter the work force eventually.

decline in the participation rate of women in the 25-34 years cohort is
attributed to women dropping out of the labor force for child rearing,"
notes Banglore.

But since women 25-34 have been having babies for as far back as I can remember, I have to wonder why the shift in the participation rate happend suddenly in the 2000-05 time frame. While additional data is needed to confirm if women dropped
out temporarily or if it is a permanent event, the key question is why did they leave in the first place? My guess is that if pay and benefits were better, their numerical drop rate would be less pronounced.

The next grouping is the 35-54 year olds. These are higher paid, more experienced employees — the most likely to be cut in mass layoffs (high $/headcount ratio). Further, they are the ones with the most industry specific skillsets  who will be the most difficult to retrain for other industries. Think auto line workers, mill laborers, and increasingly outsourced jobs like software, legal and accounting.

Ironically, it is the baby boomers who’s participation rates have risen the most (55+). Some have theorized that their return to work is a function of 201ks — i.e, their 401k plans that got cut in half in the 2000 meltdown, and they haven’t recovered financially yet. Hence, they go back to work . . .


Noteworthy Aspects About the Participation Rate (2000-2005)
Asha Banglore
Northern Trust Economic Research: Daily Global Commentary, January 10, 2006 

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  1. ElamBend commented on Jan 11

    Am I the only one who thinks that Baby Boomers will have to dragged kicking and screaming out of work?

    I think many find a lot (too much?) fullfillment in work, plus prophlagate spenders that they are, I’m not sure many can afford to retire to the lifestyle they want, yet.

  2. spencer commented on Jan 11

    For women of child bearing age dropping out of the labor force to raise children may be a function of the cost/ benefit ratio. Or, in other words, it costs so much to work in terms of child care expenses, communing costs, clothing, taxes, etc., contrasted with low wage gains over the last few years it is no longer worth working.

  3. Barry Ritholtz commented on Jan 11

    But this whole child rearing thing is not a new invention — why the sudden upswing?

    Or asked in other words, what has changed about the math to make no longer worth working an increasingly attractive option ?

  4. cactus commented on Jan 11

    Most economists have a hard time with the concept of discouraged workers. With all due respect to your commenter, that strikes me as a sign of lack of empathy, empathy being nothing more than the ability to put oneself in another’s shoes.

    Say you live in a small or medium sized town an hour or two from the nearest big city. I would guess that much of American lives in such town. Now, say the largest employer in the town closes down or scales back operations. All of a sudden a very large percentage of the town is out of job, and other local businesses (supermarkets, restaurants, etc.) will be hurting.

    Now, you immediately look for another job – as does everyone laid off at the same time you are. So the odds of getting another job in the area are minimal.

    Which leaves moving. But, that house that you live in – its now worth a lot less than it was right before you lost your job (who’s going to be wanting to move into a newly economically depressed area?), and it already was worth a lot less than a not-quite comparable house in the big city. If you move to the big city – if you uproot your family – just making the attempt, with no guarantee of success, puts you a few hundred grand in the hole without even knowing if you can get a job there.

    Meanwhile, what do you leave behind? Well, maybe your spouse works at the local diner and brings in some income. Maybe your in-laws and your parents live in town, so you have free babysitting and perhaps some other expenses (i.e., those involving the kids) covered.

    If you have a spouse, two kids, a dog and mortgage, my guess is that in many instances it might actually be logical (i.e., expected marginal benefits exceed expected marginal costs) to just give up.

  5. David Silb commented on Jan 11

    I think this goes to a theory I have about the Baby Boomers are actually holding back job growth. (now before you start stay with me.) They are facing retirement and with advances in technology it is enabling them to hold off worker replacement. Since they are old enough to hold many senior positions in the workforce it is they who make hiring and firing decisions and I think what they are doing is forcing middle management to do more with less people.

    I have spoken with two CEO’s of two large tech firms (I will not name names ever) one manufactures computers and the other sells tech products online. Both have the same answer for me when asked about hiring. If they don’t hire new workers they keep the bottom line healthier and their bonuses reflect what the bottom line looks like. They outsource like crazy, and they hire less qualified people to pay them less.

    One told me that he would love to hire me but I am “too qualified” and my salary requirements would put too much of a strain on his budget.

    So as to why younger demographics are dropping out. If my above premises holds throughout the economy it is possible they simply aren’t offered opportunity to participate in the economy.

    One more observation: a M.D. graduating in 1970 paid roughly around $7000 – $15000 for his medical education. A graduating student today is well above $100,000 yet in the marketplace they are paid the same for the the exact same proceedure. If the MD from 1970 invested cost was $15,000 and the MD of today invested cost is $100,000+ Who is servicing debt and who is pocketing. (actual net to the docter after office and such are paid I’m talking his take home pay)

    I think a lot of our weak labor recovery and inflation fears are tied to one group. The retiring baby Boomers and if they think there isn’t enough money in the system to support them in retirement they may be right.

  6. M1EK commented on Jan 11


    In my field (high-tech), I see more women dropping out to raise kids because salaries have stagnated over the last couple of years, and the chance for big bucks from stock options has largely evaporated. Less upside to staying in the workforce than when I started my career in the early 1990s, in other words.

    (I should possibly say that it appeared that FEWER women were dropping out to raise kids during the 1998-2001 bubble than would otherwise appear normal due to the same).

    So in my field’s case, a painful overcorrection seems to be causing it. Anectdotal, of course.

  7. Lord commented on Jan 11

    Boomers extend all the way down to age 40, so a lot of those are overqualified employees. The older ones at least had the senority to hold on – for now. In the next recession I expect to see them forcibly retired. There really is no position for the over qualified. If they have some hobby or talent they might occupy themselves with it. Most probably won’t work again. Not much point in managing a burger stand when you previously held a challenging, stimulating, upper level management job.

  8. Roger Nusbaum commented on Jan 11

    I live in a small town, a couple of hours away from a big city. It is very common here for people to work “off the grid” doing things like odd jobs, painting, hanging drywall or logging (this is particular to where I live).

    Someone getting by as I have described here would not be considered a part of the labor force. I think as the economy evolves there will be more of this. Despite the uncertainty, this type of work can more than pay the bills. Clearly this is not lucrative but it is what people have to do to get by.

    As for boomers retiring; retirment will probably be a different thing than for the parents of boomers. This will likely include working one way or another. Aside from the financial aspect of it, working longer makes for healthy aging.

    Just my two cents

  9. Mike M. commented on Jan 11

    In regard to the women/child rearing issue: I seem to recall hearing anecdotally about a growing interest in raising a family in the post 9/11 world.

    Any chance that could play a role in the drop in female participation? Did the women’s participation rate drop off more sharply after 2001?

  10. David Silb commented on Jan 11


    Boomers do not extent down to people in their 40’s PERIOD.

    Those are X’ers. And X’ers and Boomers are diametrically opposed. As an X’er I take great umbrage if anyone lops us in with the Boomers who are predicted to leave the nation in worse condition than when they found it.

  11. Emmanuel commented on Jan 11

    I’m kind of late to the discussion, so I’ll try to be unique by painting an even glummer picture. Some thoughts:

    (1) Sometime ago, they had similar data about diminishing labor force participation by women in the Southwest on Mark Thoma’s blog. My reasoning was that the religious right was prominent there, hence the emphasis on child-rearing and family-oriented lifestyles. You know, a woman’s place is in the home and all that discriminatory claptrap. If this pattern holds true in other Bible-belt areas, well, there you have it.

    (2) Boomers got screwed out of the American dream. Whether it was self-inflicted or promises were broken, it doesn’t really matter. After spending like lunatics and going deeply into debt like the rest, they now find that, gee, they can’t afford to retire. They’d want to, but they most likely cannot.

    (3) Younger folks seem to be under the illusion that more education will get them jobs or better jobs. The fact is, as many commenters have suggested, many companies are not really looking to hire, but want to work the persons they already have to death. Since overtime is not regularly recorded in white-collar jobs, you have productivity going through the roof, while in reality, it’s just that people are being worked to death. Slave ship America is underway.

    (4) Most job creation is of the McJobs variety, as I’ve commented elsewhere on this blog. That wage growth is not keeping up with inflation is therefore no mystery.

    So there you have it. This bear is in deep hibernation.

  12. M1EK commented on Jan 11

    David, you were responding to the comment made by “Lord”, not by me.

  13. Chad K commented on Jan 11

    It seems almost amazing to me that this wasn’t picked up on the dozen or so times it’s been mentioned in commentary relating to unemployment (etc)… (especially since I posted it).

    There’s plenty of anecdotal evidence to support the theory that women are leaving to take care of kids at home, but I believe that the larger stats presented here are more revealing. The cost of daycare has gone up greatly (inflation++) in the past 5 years. The tail-end of Gen-X (people 28-32) and the early to mid Gen-Y (20-27) are creating babies at a higher rate than those 32-40 did in the same age bracket. (Feel free to verify via IRS or Census)

    So many studies have found that kids with a stay at home parent are more well rounded. They’re the majority of the advanced students in school, and have better social and communication skills. Plus, with all of the events they have for kids and parents today, such as Gymboree or Mothers Day Out, kids still get the social interaction they need, along with the love and attention and tutoring they can get from home.

    So if given the decision that most of us parents are… taking home an extra $200-$400 after taxes, day-care, gas and other expenses due to a working spouse, or the stuff mentioned above… I’ll take the cut in money if it means my kids will have a better chance at happiness and success in life. I see a vast majority of people I know, in my age range, that see things the same way. Apparently it’s not just a midwest thing.

  14. JoshK commented on Jan 11

    “Slave ship America is underway.”
    That’s a bit strong. Just go to a site like monster.com and search by common job titles and you will find tens of thousands of medium to high wage jobs.

    When my wife and I had our pre-baby classes (I’m 33), I was the youngest guy there by at least 10 years. We may be seeing on a larger scale the rush of women who have put off children rushing in now to get “into the game”.

  15. JSchreiber commented on Jan 11

    Who’s leaving the labor force?

    In a word… homeowners.

    With several hundred billion dollars home equity withdrawal last year, who needs to work?

  16. muckdog commented on Jan 11

    I know some folks who have dropped out of the labor force because their homes appreciated like crazy, they sold them, and bought something cheaper elsewhere, banked $400K or more, and are just taking a few years off. Anecdotal, sure. But I wonder how widespread this is or if would be enough to impact the charts enough to make a difference.

  17. muckdog commented on Jan 11

    (Obviously, not the teenagers. We know they’ve dropped out of the labor pool because they’re playing their new XBOX 360s. But maybe 30-somethings and up.)

  18. scorpio commented on Jan 11

    barry, how far back does this data go? i may be wrong, but when the economy is truly strong, as in late 90s, then people get back to work: jobs are good, pay is good, people want to work for new fun companies. this recovery is weak (1/2 housing related), jobs are not plentiful, they also suck, management is oppressive, capital holds the outsourcing cudgel over workers’ heads. the key to the late 90s wasnt just that the market was up, it’s that the IPO phenomenon was injecting hot money into the economy, and the multiplier was outa site.

  19. Anon commented on Jan 11

    Go anywhere in middle America. Look at Walmart. Look at the fast food places. All the employees are 60+.

    The giant retail and foodservice chains have discovered that older employees have less absenteeism, don’t shoplift, don’t chat with their friends when they should be working.

    The older employees have discovered that their pension is gone, their spouse got laid off, and they don’t have much in the bank. Plus their medication costs a fortune, and so does health insurance. But they don’t have a lot of expenses beyond the medical ones, so Walmart is a good enough job – it closes the gap between what’s coming in and what’s going out.

    That’s the single largest trend – the old people are taking the scut jobs that the young people used to do. The young people are doing the college thing if they can afford it, otherwise they’re just hanging around the house with Mom and Dad.

    You can expect this to continue. Medical costs aren’t going away. Pensions and social security aren’t getting any better. That means more and more old people who are pretty decent employees, all things considered, and have to have some sort of job to make ends meet, and don’t mind if it’s a 30-hour-a-week thing. Somebody needs to chart the average age of a Walmart employee vs. time.

  20. D. commented on Jan 11

    First of all, for all the self-serving conservatrons out there, research has shown that kids who go to QUALITY daycares and are brought up by well balanced mothers fare better than the average kid who stays at home with mom.

    1. If you look at which jobs have been cut in the last few years: operatives, office clerks, laborers. So it’s no surprise that young men and women have been hit the most.

    2. With real estate going up, it makes it much easier for women to stay at home as households feel richer.

    I know plenty of couples who’ve been making money like crazy in real estate/construction where the wives are now living a life of leisure. Just a few years ago they were middle class!

  21. cm commented on Jan 11

    Anon has touched on it, but employer-assisted healthcare should be a major motivation to seek employment for the over 50.

  22. cm commented on Jan 11

    Barry @ Jan 11, 2006 1:52:21 PM —
    I think spencer right before you addressed that question, no?

    And D. — I’d agree that children who grow up in a social context with others learn better how to fare in society than stay-at-homers. But then nobody claimed people make optimal choices. The cost of daycare and effort moving kids from/to daycare/school and elsewhere during the day can almost neutralize the second income, and make it difficult to hang on to or perform well (or perhaps rather “as expected”) in the job, or make it more stressful. Given the social stereotypes and resulting pressures, “kid stuff” mostly falls to the mothers.

  23. cm commented on Jan 11

    cactus: Yup, plus you get to hang out at home and have the opportunity to listen to lectures about “jobs that Americans won’t take”.

  24. Jon H commented on Jan 11

    “Over qualified employees unwilling to accept much lower paying/benefits positions (35-54);”

    To an extent, this is “blaming the victim”.

    I doubt they’re being offered “much lower paying/benefits positions”, *because* they are over qualified.

    Being willing to accept a lower-paying job doesn’t help if nobody will offer you one.

  25. JoshK commented on Jan 12

    “research has shown that kids who go to QUALITY daycares”

    That sounds like an absurd example of selection bias. How about this: Research has shown that people who make QUALITY prayers are healed from their illnesses.

    Clearly, if they wren’t healed, they must not have had QUALITY praying. Just define quality as you wish and you can make anything like this work.

  26. D. commented on Jan 12

    Speaking of absurd, how can you compare prayers and daycare?

    There is this mindset out there, if not brainwashing, that it’s best for mothers to stay at home. Ironically almost all of the most screwed up people I know were brought up by SAHMs… because that’s what most women did in the 60s and 70s!

    Our government has put a lot of focus on the quality of our daycares because it’s banking that it will make a difference in the long run. We will be getting hit by labor shortages within the next 5 years so isn’t it intelligent to get the most ambitious, educated and talented moms to stay in the force?

    Nearly all of the most important positions in society, the ones that actually make the wheels of the conomy turn are paid some of the lowest salaries. Wages that don’t easily cover daycare costs.

    Since it’s hard for many private/home daycares to break a profit they will cut costs (i.e dilute milk or serve Kraft dinner 5 times a week) when unsupervised.

    Our government has noticed that, in kindergarten, there is a big difference between children coming from quality care and those from stay at home moms. There are a lot of depressed women out there and a child is not always better at home!

  27. DJ commented on Jan 12

    Mothers leave the workforce now because of the growing cost of childcare. At $200/week/child if a mother has two children she has to earn $30K just to break even with child care. So why not stay at home instead if work will not make you better off.

    I am 32, but when I was 8 yrs old my working mom left my sister (age 10) and I at home until she got home from work. We were the phenomenon called “latchkey kids”. Nowadays they would consider taking you away from home if you didn’t have supervision at that age. I don’t know how single mom’s do it today.

  28. JoshK commented on Jan 12

    “Speaking of absurd, how can you compare prayers and daycare?”
    You miss the point. I’m pointing out how arbitrarily labeling what works as QUALITY and what doesn’t as not QUALITY is poor analysis. Another example: “Research has shown that QUALITY mutual fund managers always outperform the .SPX” Sure, by definition.

  29. D. commented on Jan 12

    No it isn’t. Research could have shown that staying home with a screwed up mom is still better than being grouped and sharing attention before the age of five in the best daycare. Human conditioning is full of surprises!

    I purposely specified quality because most people have been brain washed into thinking that mom staying home is still better than the best quality daycare.

    To top it off, the research showed that kids who had a great mom AND went to a quality daycare fared better than kids who stayed home with a great mom.

    Do you actually want me to explain and describe what quality is? I can tell you that ever since the provincial Government has stuck its nose into the daycare situation the services have drastically improved. I lived the before and after. I don’t even need anyone to define quality vs. mediocrity for me because it’s flagrant.

  30. JoshK commented on Jan 12

    “I don’t even need anyone to define quality vs. mediocrity for me because it’s flagrant.”

    You’re defining this by results. Here’s a simpler example. Good cars last longer. Sandwiches that taste good are tastey.

  31. Chad K commented on Jan 12

    Totally an opinion here… but I believe a “Quality” Mother will defeat a “Quality” Daycare hands down.

  32. JoshK commented on Jan 12

    Since we’re very flexible with “Quality” here, I think that homes owning a “Quality” firearm can be shown to produce the most successful children. Or families owning a “quality” pet.

  33. Lord commented on Jan 12

    Either 1945, 61, or slightly before is identified as the beginning of the boomers. The birthrate peaked in 1957, 49, and dropped until reaching bottom in 1964, 42, so many are in their upper 40s.

  34. Eva commented on Apr 24

    I decided to stay home with my children when my youngest child was born, three years later as I considered re entering the work force. A third child with emotional special needs came into our home and we decided for the health of the family I would stay home a bit longer. Now, five years since I left the work force, I have been trying to go back to work only to find that the rules have all changed. I taught preschool for nearly twenty years and now even with a four year degree from a great college I no longer qualify. It is unreasonable in my view to be expected to go back to school for another year for ten dollars an hour. Changing careers this late in life is a very stressful prospect but may be what must be done in my case. As a fourty something woman I am overeducated (I have been told) for many of the retail positions and they don’t pay enough to even equal what it would cost me to go to work let alone bring in more money.

  35. action commented on Feb 4

    Bottom line- too many people not enough jobs.
    It’s no longer deniable that outsourcing and immigration have had their effect on the job market and our declining standard of living.

    It’s just that it has reached into the middle management/college educated class again as it did in the late 80’s and early 90’s before the Clinton years. We heard the same things back then that we are hearing now.

    We had a reprieve during the 90’s not because of some mythical “tech boom” but because the tax rate on the wealthy elites in our county was higher. Consider how much worse things have gotten since the 50’s when the tax rate on the obscenely rich was even higher than it was then. Now that we pay their taxes for them, they have plenty left over for bribing our elected officials. This in turn will lower their taxes even more and beget yet more immigration and outsourcing; neat huh?

  36. Jen commented on Sep 13

    As for the moms that drop out of the workforce, I wonder if some of them might be like me (found a way to make money from home – and not technically considered in the workforce any more). I’m not sure how much of a percentage change that makes, but with the internet I do think there are maybe more opportunities for home-businesses than there were in the past.

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