Last month, the US’ labor-force participation rate for the 25 to 54 age group hit 83.1 percent, surpassing its pre-COVID-19 pandemic, pre-recession peak — which never happened during the past two economic expansions. This is something to celebrate: The US is back to work.
However, not all of the US. The 25 to 54 age group is the core of the labor force, often referred to as “prime age,” but there are 58 million people in the US working outside of it, 21 million younger and 37 million older.
Their experience during the pandemic has been more complicated and helps explain the labor shortages, the so-called “great resignation” and other interesting phenomena of the past couple of years.
Teenagers are substantially more likely to be in the labor force than before the pandemic, so they are not the issue.
However, participation rates for those aged 20 to 24 and older than 55 are still well short of where they were in February 2020.
The labor-force participation rate is the estimated percentage of the US civilian, non-institutional population — that is, not including uniformed military and prison inmates — that either has a job or is actively looking for one.
The US Bureau of Labor Statistics calculates what it calls the employment-population ratio, which is just what it sounds like. It has followed a pandemic trajectory similar to that of labor-force participation, although as of last month, the prime-age ratio was still 0.1 percentage points short of its January 2020 cyclical peak.
What has happened to young adults and people older than 55? It could help to look at narrower slices of the age distribution than those shown. Most of these age group statistics are available only without the seasonal adjustments that make month-to-month changes comprehensible, and thus usually ignored in monthly jobs-report commentary.
However, it has been three years since COVID-19 began to affect labor markets in the US, making now a good time to look at what has changed.
After a couple years of making these charts, I have learned that there is a lot of month-to-month noise for the smaller age groups, which is why I compare December-to-February averages rather than just the February numbers.
The 55-and-older age group has not experienced across-the-board declines. People in the US in their late 50s and early 60s are more likely to be in the labor force and working than before the pandemic. It is only those 65 and older who are not, which amid a pandemic that in the US has exacted more than 75 percent of its toll — and almost 90 percent in recent months — among that age group seems rational, reasonable and not easily reversed.
Another big contributor to the decline in the 55-plus age group has been its shifting age composition. Most baby boomers are 65 or older, while the 55 to 59 age group, which has much higher participation and employment rates, is made up mostly of the less numerous members of Generation X.
If you adjust for aging by holding each narrower age group’s share of the 55-and-older population constant, most of the participation decline since February 2020 disappears.
What this means is that there is not a lot that can be done about the 55-plus group’s labor-force participation decline. The dropouts during the pandemic have been mostly people aged 65 or older, and they are not getting any younger. Barring the arrival of a big wave of immigrants in their 40s and early 50s, the older-than-55 group would keep skewing older until millennials start turning 55 in the mid-2030s.
The decline among young adults is a different story. It is not just the 20 to 24 age group that has been affected, with even bigger declines in participation and employment of people in their late 20s. There have not been big shifts in the age distribution within either group, so composition effects are not to blame.
There are more than 400,000 people in the US in their 20s missing from the labor force, people who should be at the beginning of long careers, not fading into the sunset.
It could partly be due to measurement error — the numbers for these narrower age groups are pretty noisy, and with the response rate to the US Census Bureau’s monthly Current Population Survey from which these statistics are derived falling from 82.3 percent before the pandemic to 71 percent last month, they could also be less reliable.
However, it is plausible that people near the beginning of their careers would have been especially set back by a pandemic — and the reaction to it — that initially threw them out of jobs at a higher rate than other age groups, and interrupted the hiring of college and high-school graduates.
Anna Crockett and Jason Saving of the Federal Reserve Bank of Dallas offered these explanations in December 2021:
One is that they might have experienced labor market “scarring,” and seen their skill sets erode to the point where they can no longer find work for the wage they used to receive. Another possibility is that COVID-era safety nets were sufficiently generous that some individuals might have been incentivized not to work. A third is that young adults might have been disproportionately pulled into elder care or childcare responsibilities.
On the flip side, demand for labor has been high since early 2021, with pay rising fastest for young low-wage workers. This has been enough to drive participation and employment gains for teenagers, but after decades of declines they were starting from quite a low level, with a labor-force participation rate of just 36.7 percent in February 2020.
For those in their 20s, the crosscurrents seem to have resulted in declines. Reversing them would likely require continued strong labor demand, which given the unsettled financial and economic environment might not be in the cards.
Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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