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JOHN E. SUNUNU

The mysterious shrinking workforce

istockphoto/globe staff illustration

FOR TEENAGE nerds growing up in the 1970s, the TV series “In Search of . . . ” was the pinnacle of entertainment. Investigating the world’s unsolved mysteries, the show featured waves of creepy music and narration by Leonard Nimoy — Mr. Spock of “Star Trek” fame. I was always intrigued by the mysteries that were right in front of us, such as the monolithic Easter Island statues or the Nazca lines on the plains of Peru. Despite decades of archaeological research and analysis, the explanations for these phenomena still came down to piles of conjecture and the lasting hope that some new piece of evidence would help unravel the riddle.

The phrase “declining labor participation” doesn’t generate the same electricity as “Loch Ness monster” or “curse of Tutankhamen,” but scratching the surface of the past year’s employment statistics reveals a mystery every bit deserving of Nimoy’s dramatic flair. It’s true that 169,000 new jobs were created in August, and that America’s unemployment rate fell to 7.3 percent. Unfortunately the primary factor behind that declining rate was the steady reduction in the number of people seeking work. Adult participation in the workforce has fallen to its lowest level in 35 years — and nobody knows why.

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When people without jobs stop looking for work, the government no longer counts them as unemployed. To understand the marked effect this can have on economic statistics, consider that if the participation rate had held steady over the past five years, the official unemployment rate would be 11.2 percent. Instead, the participation rate has fallen from 66.2 percent to 63.2. During the recovery periods of 1982-84 and 1992-94, just the opposite was true. A growing economy encouraged ever-higher numbers to join the workforce, with participation peaking in 2000 at 67.3 percent.

Since the size of the economy is dependent on the number of employed workers and their productivity, having fewer people in the labor force places long-term limits on economic growth. Having fewer workers taking home paychecks also places downward pressure on the consumption of everything from clothes to cars to houses. On the other side of the ledger, dropping participation places greater burdens on public coffers by raising the number of people eligible for government benefits.

In turn, the generosity of federal assistance programs has been offered as one possible explanation for the missing workers. On average, Americans are eligible for 53 weeks of unemployment insurance, nearly twice the prerecession level; in some states, that increases to over 70 weeks. In addition, approximately 9 million adults receive Social Security disability payments, a number that has grown by 50 percent in the past decade. In similar fashion, the number of people receiving nutrition assistance — commonly known as food stamps — has soared from less than 20 million to over 45 million in just 10 years.

That’s not to say that these benefit programs shouldn’t exist. But taken in the aggregate, the sum of benefits being received could act as a disincentive to reenter the workforce. It’s not a question of work ethic, but one of economics. Why give up a package of benefits for a job opening that pays $5,000 or $10,000 less?

Other suspected causes are shifts in demographics and the aging of America. Among those over 60, however, participation rates have actually increased during the past five years as workers struggle to restore their retirement savings. Even adjusting for the aging of those in the prime working years, economist Lawrence Lindsey calculates that 80 percent of the fall in unemployment is due to falling participation.

Adult participation in the workforce has fallen to its lowest level in 35 years — and nobody knows why.

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Economists describe the adults leaving the workforce as “discouraged.” Indeed. “Discouraging” may be the ultimate description of today’s job market. Monthly job creation has been positive for over two years, but the average rate pales in comparison to previous recovery periods. Jobs are tough to find, and many are part-time.

That means the drop in participation may be as much emotional as it is economic or demographic. It reflects a lack of optimism about tepid trend lines of economic growth, about stock prices propped up by easy money from the Federal Reserve, and about America’s international reputation, which appears to be in decline.

This troubling trend may just be a statistical anomaly that we will look back upon 10 years from now with a shrug. Then again, maybe not. It’s a mystery that might never get its own TV show, but we still need answers just the same.

John E. Sununu, a former Republican senator from New Hampshire, writes regularly for the Globe.
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