Is the US Running Out of Qualified Workers Who Actually Want to Work?

The May employment report had the bifurcated result of less than expected jobs growth but a better than expected drop in the unemployment rate. The nation only created 138,000 jobs compared to the consensus forecast of 182,000 from economists surveyed by Bloomberg. The Bureau of Labor Statistics (BLS) also revised the previous two months’ data to now show a net downward revision of 66,000 jobs. Yet, the nation’s unemployment rate fell from 4.4% to 4.3%.

This raises the question as to what is causing the divergence. Delving into the question a little further shows the following when we examine the Household Survey portion of the report. The reason the unemployment rate fell is because 429,000 people left the labor force and were no longer looking for work. This also resulted in the labor force participation rate declining from 62.9% to 62.7%. The first reaction from many people is that this is simply the Baby Boomers retiring and no longer looking for work. Unfortunately, the evidence does not support this claim. Drilling down into the labor force participation rate by age group shows that the decline in the labor participation rate is occurring with the younger ages (20-44 years old). The table below shows the change in the labor force participation rate by age groups.

Age Group	May 2017 Labor Force Participation Rate	April 2017 Labor Force Participation Rate	Change From Previous Month
20-24 years old	70.9%	71.7%	(.8%)
25-34 years old	81.8%	82.0%	(.2%)
35-44 years old	82.5%	82.7%	(.2%)
45-54 years old	80.4%	80.4%	Unchanged
55+ years old	39.9%	39.9%	Unchanged

 

This is not a short-term problem between the month of April and May. The following table shows that the decline in the labor force participation rate for the 20-44 year old age groups has been falling throughout this business cycle. The time period measured is from when the recession ended (6/2009) until now.

Age Group	May 2017 Labor Force Participation Rate	June 2009 Labor Force Participation Rate	Change From Previous Month
20-24 years old	70.9%	73.3%	(2.4%)
25-34 years old	81.8%	82.9%	(1.1%)
35-44 years old	82.5%	84.3%	(1.8%)

 

Making the argument that the decline in the labor force participation rate is nothing to worry about because it is simply the Baby Boomers retiring does not explain why the prime working age population is dropping out of the labor force. The data does not provide an explanation but here are three possible scenarios plus various combinations of the three scenarios.

Scenario #1: People are earning income through the “gig” economy. The “gig” economy is a throwback term from the jazz era where musicians worked from gig to gig without full-time employment. It is now used to describe people who take on work in a similar fashion and don’t necessarily consider themselves as being employed either full-time or part-time.

Scenario #2: We have a skills mismatch where people between the ages of 20-44 have skills that do not match what businesses are looking for. This may especially be true if they were unemployed for a long period of time and then just stopped looking for work. As automation replaces old jobs and creates new jobs, the risk of a skills set mismatch grows.

Scenario #3: People see no need to work because they are able to live the lifestyle they want by utilizing the nation’s social support programs, getting assistance from relatives or friends, and/or reducing costs by utilizing shared living arrangements.

This raises several concerns if there is going to be a growing population of people who are capable of working but choose not to work.

Automation

Automation is already causing disruption to the jobs market. A study by Ball State University found that 13% of manufacturing jobs lost were due to global trade while 87% of the jobs lost were due to automation. If people are not seeking work, and businesses experience growing labor shortages, this could accelerate the trend of automation and permanently eliminate jobs. If businesses see their labor costs rising due to labor shortages, they may reach the point where automation is both cost effective and necessary if they want to grow. We are seeing evidence of this trend towards automation in construction, manufacturing and agriculture.

The problem with permanently eliminating these jobs is that machines don’t pay rent, buy goods and services or pay taxes. This would clearly impact cities, counties, states and the US unless new revenue streams are found or people are retrained to fill new jobs being created by automation and innovation.

Impact to the Deficit and Debt

Our deficit and debt situation could be further stressed through reduced payroll tax revenue that would be collected in a traditional job, as well as the impact discussed above with automation.

Impact to the Nation’s Social Programs

Our social programs (and ultimately our deficit and debt problem) could be stressed if a growing number of people start accessing our social programs as a replacement source of income.

As the US discusses, debates and argues about the impact to jobs from global trade and immigration, perhaps we should be spending as much time ensuring that our working-age population has the skills necessary to succeed in a changing jobs environment, and on finding ways to bring people who are currently out of the labor force back into the labor force.

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