To Reverse the Decline in Labor Force Participation, Grow the Economy
For the first time since 1978, the United Kingdom has a higher overall labor force participation rate than the United States. However, since 2002, labor market activity for those in their prime working years has been higher in the United Kingdom because of the declining labor force participation rate in the United States.
The labor force participation rate counts all people actively participating in the labor market, both those who are employed and those who are seeking work.
In 2001, the United Kingdom and United States both had labor force participation rates for prime age workers—defined as those ages 25 to 54—of 84 percent. Since then, the U.K. rate has increased to 86 percent and the U.S. rate has declined by three percentage points to 81 percent.
The different paths of the two economies is almost entirely due to the U.K. female labor force participation rate. Prime age women moved into the labor force in the first decade of this century, a trend that has not yet stopped. The United Kingdom still has a lower percentage of working women than the United States, but the U.K. is catching up.
The rate for U.K. men in their prime working years barely changed since 2001, whereas the U.S. rate has dropped by three percentage points. The rate for all U.S. men has fallen nearly five percentage points over the same period.
It is not only men who are leaving the U.S. labor force, women are too. Women in their prime working years have decreased their U.S. labor force participation rate by 2.5 percent since 2001—similar to the decrease for all women.
Although women’s labor force participation has increased in the United Kingdom, 36 percent of U.K. women age 25 – 54 worked in part-time positions, compared to 13 percent of U.S. women. So the differing U.K. and U.S. labor force participation rates are not strictly comparable.
The United States has a higher proportion of people aged over 65 in the workforce than does the United Kingdom. If not for these older Americans, the difference in labor force participation rate between the two countries would be even greater.
When people drop out of the labor force, the economy suffers. Economics21 contributor Charles Blahous argues, “prosperity basically derives from two factors: the first being how much Americans work, the second being how productive we are while working. Anything that systematically reduces either factor lowers the standard of living that Americans experience as a group; it means that our economy will be smaller, federal deficits will be larger, financing shortfalls in programs like Social Security will be larger, and so on.”
The United Kingdom’s rising female labor force participation rate is following a trend that took place in America in the 1980s and 1990s. As jobs open up to women, they invest in the education needed to participate in different professions. Once the investment has been made, they keep working to earn the returns to that education. America needs to increase GDP growth so that discouraged workers, male and female, reenter the labor force. How to do that is a subject for another column.
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