Amid the seismic impact of the COVID-19 pandemic on the US workforce, 30.5 million workers have resigned just in August 2023.
The Labor Force Participation Rate (LFPR) in the US has been seeing a downward trend since the early 2000s, but the COVID-19 pandemic accelerated this trend, causing millions of workers to drop out of the labor force.
In this article, we will explore the data, causes, consequences, and possible solutions of the declining LFPR in the post-pandemic US.
Key Takeaways
- Amid the COVID-19 impact, 30.5 million US workers resigned in August 2023, accelerating the long-standing decline in the Labor Force Participation Rate (LFPR) since the early 2000s.
- Face-to-face industries, like leisure, hospitality, and retail, faced a 70% decline in LFPR from Feb-April 2020. Job losses, reduced hours, and health concerns led to a slow recovery in these sectors.
- Despite LFPR decline, sectors like manufacturing, construction, and transport struggle to find qualified workers. Factors include skills mismatch, enhanced unemployment benefits reducing job search, and early retirements due to the pandemic.
- Women, burdened with childcare responsibilities, saw a dip in LFPR from 77.1% (Jan 2020) to 75.2% (Oct 2023). Lack of affordable childcare options hinders women from returning to work.
A Closer Look Through Data
According to the Bureau of Labor Statistics (BLS), the LFPR in the US was 62.7% in October 2023, down from 63.3% in January 2020, before the pandemic hit. This means that roughly about 4.5 million fewer people were in the labor force in October 2023 than in January 2020.
A May 2022 survey by the U.S. chamber observed that the pandemic compelled close to 3 million adults for early retirement. The need to take care of children or family members hindered 27% of workers from returning to work. And more than almost half of the working population (49%) refused to work if the work-from-home opportunity was not offered.
The LFPR peaked at 67.3% in early 2000 and has been falling ever since, mainly due to demographic factors such as aging population and lower fertility rates.
However, the pandemic has added another layer of complexity to the LFPR dynamics as it has affected different groups of workers differently.
Most Impacted Industries
The pandemic had a disproportionate impact on certain industries that rely heavily on face-to-face interactions, such as leisure and hospitality, retail trade, education, and health services.
Leisure and hospitality saw a 48.6% plunge in employment, retail trade’s share of total employment is predicted to decrease from 9.7% in 2020 to 8.6% in 2030, the participation rate for individuals with a high school diploma or less dipped to 51.8%, and the overall labor force participation rate declined from 63.4% to 62.3%, indicating a loss of 3 million workers.
| Industry | Filled Jobs (by %) | Unfilled Job Openings (by %) |
|---|---|---|
| Durable Goods Manufacturing | 85 | 15 |
| Wholesale and Retail Trade | 85 | 15 |
| Financial Activities | 35 | 65 |
| Professional and Business Services | 35 | 65 |
| Leisure and Hospitality | 55 | 45 |
These industries experienced large job losses and reduced hours during the lockdowns and social distancing measures, and many workers in these sectors either lost their jobs permanently or voluntarily left the labor force due to health concerns, childcare responsibilities, or lack of opportunities.
Factors Contributing to Labor Shortage
Despite the decline in LFPR, many employers are facing difficulties in finding qualified workers to fill their vacancies, especially in sectors such as manufacturing, construction, transportation, and warehousing.
This is partly due to a mismatch between the skills and preferences of workers and employers, as well as geographic and mobility constraints.
Some other factors that might be contributing to the labor shortage include:
Enhanced Unemployment Benefits:
The federal government provided an extra $300 per week in unemployment benefits to eligible workers until September 2021, which may have reduced the incentive for some workers to look for jobs or accept lower-paying offers.
Early Retirements
The pandemic has significantly influenced retirement trends, with nearly 3% of adults aged 55-70 retiring early, over 50% of adults aged 55 and older exiting the labor force due to retirement by the third quarter of 2021, and more than a quarter of all workers advancing their retirement plans, culminating in over 3 million adults entering early retirement by October 2021.
Labor Force Participation of Women
Women have been more affected by the pandemic than men in terms of labor force participation, as they often bear more responsibility for childcare and household chores.
According to BLS data, the LFPR of women aged 25-54 was 75.2% in October 2023, down from 77.1% in January 2020. The lack of affordable and accessible childcare options may have prevented many women from returning to work or looking for new jobs.
Leveling Up the LFPRs
The declining LFPR poses significant challenges for the US economy, as it reduces the potential output, income, and tax revenue. It also increases the dependency ratio and puts pressure on social security and health care systems.
Therefore, it is crucial to implement policies and strategies that can boost the LFPR and address the labor market imbalances.
Experts suggest a few of these as possible solutions:
- Expanding childcare support: Providing more subsidies, tax credits, or vouchers for childcare services may help ease the burden on working parents, especially women, and encourage them to rejoin or stay in the labor force.
- Enhancing skills training and education: Offering more opportunities for workers to upgrade their skills or acquire new ones may help them adapt to changing labor market demands and increase their employability and productivity.
- Promoting flexible work arrangements: Allowing more workers to work remotely, part-time, or on flexible schedules may help them balance their work and personal lives better and increase their job satisfaction and retention.
- Increasing immigration: Allowing more immigrants to enter and work in the US may help fill some of the labor gaps, especially in sectors that face skill shortages or low domestic interest. Immigrants may also contribute to innovation, entrepreneurship, and economic growth.
Since increasing immigration is the most viable option for leveling up the LFPRs, let’s delve in detail.
How Immigration Changes the Workforce of the Future
There are several reasons why immigration is helpful for increasing the labor force participation.
- Immigrants Contribute to Labor Force Growth: The data from BLS shows that, the foreign-born workers accounted for 18.1% of the U.S. civilian labor force. This rate was an increment from the previous 17.4% participation rate in 2021. Thus, 18.1% participation rate is a large portion in the labor force.
- Higher Labor Force Participation Rates Among Immigrants: The foreign-born adults tend to participate more in the labor force than their native-born counterparts. As a 2018 data indicates 65.7% participation of foreign workers, while 62.3% for the native-born.
- Immigrants Fill Jobs in Diverse Sectors: Immigrants are well-known for their choice of occupations in diverse sectors. They opt for jobs in service occupations, construction, transportation, natural resources, production, and various other sectors. This diversity of choice is rare in native-born workers.
Thus increasing migration can be a viable strategy to boost the declining labor force participation rates.
Outro
The LFPR in the US has been on a downward trend for decades, but the pandemic exacerbated this decline by affecting millions of workers across different industries and demographics.
The low LFPR has negative implications for both individuals and society as a whole, as it reduces economic opportunities, income, and well-being.
To reverse this trend and increase the LFPR, policymakers, employers, and workers need to work together to create a more inclusive, resilient, and dynamic labor market that can meet the challenges and opportunities of the post-pandemic era.
