What Happened To U.S. Workers?

Apr 23, 2019
Originally published on April 24, 2019 4:44 pm

The U.S. economy is booming. We've seen sustained low unemployment rates, wages are climbing, and thousands of new jobs being added to the economy every month. The headline numbers focusing on the labor market seem great, and they are.

And yet, some deep problems remain unsolved. For example, take the prime-age labor force participation rate — or the share of people in the workforce aged 25-54, whom you'd expect to be working rather than in school or retired. In the U.S., that share is lower than it was in the 1990s. Why do so many workers remain outside the labor force? What economic forces have led to their exclusion from the rising prosperity of the U.S. economy?

This episode is an excerpt from a panel discussion at a live event in Washington D.C., hosted by the Financial Times Alphachat podcast.

Listen to the full panel below:

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Transcript for the full panel:

The Indicator Live Panel

0:00:06:>>CARDIFF GARCIA: All right. This is allegedly going to be a panel that will be recorded and used as an INDICATOR episode. And then, of course, Brendan's is going to be an Alphachat episode. I say allegedly because almost everybody here is like, what the hell are you going to do about the background noise? There's like a Caps game going on in the background.


0:00:24:>>CARDIFF GARCIA: But it's especially great to see that the FT has kind of kept its specialty for events like this one. Specifically, I mean events that combine drinking and extremely nerdy conversations. All right, by a show of hands, how many people here have been to a live recording of a podcast? Some people raised their hands. I think they all work for NPR. But anyways, so there's something we need to do before we start, which is we actually need to take about 15 seconds of a recording where nobody talks and we just get the noise of the room. It's called ambisound. It allows the producers later to edit the show.

So when I count you down for about 15 quite uncomfortable seconds all right, we're all just going to be still for a second. Don't look anybody in the eye. It'll be awkward and maybe a little creepy, OK. Instead, like, feel free to take out your phone and bury your face in it. While you're there, download or subscribe to THE INDICATOR, subscribe to Alphachat and PLANET MONEY or go find us on social media. OK. So I'm going to count you down and then 15 seconds of complete stillness. And hopefully the Caps fans won't screw it up for us. So three, two, one - yeah, there's no way that's going to work.


0:01:58:>>CARDIFF GARCIA: All right. OK. But it does mean that we begin tonight's panel. So I'm going to start by just asking our guests to introduce themselves. Carolyn, why don't you go first?

0:02:09:>>CAROLINE FREUND: Hi. I'm Caroline Freund. I'm the director for trade and investment at the World Bank.

0:02:15:>>CHAD BOWN: And I'm Chad Bown. I am a senior fellow at the Peterson Institute for International Economics. And I co-host a podcast called "Trade Talks."

0:02:22:>>CARDIFF GARCIA: With the swag and everything.

0:02:25:>>CHAD BOWN: With swag and everything.

0:02:28:>>CARDIFF GARCIA: So I thought I would introduce the topic of the first panel by essentially violating the jargon-free rule right away. So here we go - prime-age labor force participation rate.


0:02:42:>>CARDIFF GARCIA: For those of you who don't spend all your time geeking out on economics - and actually, for this crew, that might be a minority of you. I'm not sure. Take all the people between the ages of 25 and 54 - right? - so basically people who are old enough that they're probably out of college but young enough that they're not retired and that they don't want to retire. So the people that you would expect to be working or looking for work, right? In that population, the people who are in fact working - they have a job - or they don't have a job but they're looking for work, that comprises the labor force. OK, and as a share of the total population, those people make up the labor force participation rate for that age group. When that participation rate is falling, it usually means that something has gone wrong, right? It means that people, for whatever reason, feel like they are excluded from the workforce, that they are not sharing in the rising prosperity such, as it is, of the U.S. economy.

And in the past few decades, something has gone wrong. That is the topic of this panel. So I'm going to start by throwing some questions to our guests, to our panelists. And then we're going to discuss some of the lessons that U.S. policymakers can learn from other countries, which by the way, do not share this problem with us. OK. So first question goes to you, Caroline. Why don't you just start by describing what, in fact, has happened to the U.S. labor force participation rate in the last few decades? And how does the U.S. compare to other countries?

0:04:09:>>CAROLINE FREUND: Yeah. So what's interesting is, for a long period, participation was actually increasing. So from 1950 to the 1990s, we saw a big increase of about 20 percentage points - from 65 percent to about 85 percent. Then in the 1990s, it kind of started stagnating. And after that, in the 2000s, it started falling. And so something really happened that changed what was going on. American workers weren't participating in the workforce even though these are prime-age workers. They're not the ones who should be retired. And they're not the ones who should be in school.

0:04:51:>>CARDIFF GARCIA: Quick follow-up. How does this differ between men and women?

0:04:54:>>CAROLINE FREUND: Well, some men actually haven't been as diligent as women because they actually were decreasing their participation over time. Women, however, were increasing up to 2000, and that's when they started falling off. But for - even for the men, the decline after 2000 was really more stunning.

0:05:16:>>CARDIFF GARCIA: Chad, something that we often hear about what might be causing this problem in the U.S. is, like, broader macroeconomic pressures. But what's kind of interesting is that the U.S. is not unique in facing the same pressures that other countries are. So why don't you describe what some of those macropressures might be and then sort of explain, like, why you think it is that the U.S. stands out here.

0:05:40:>>CHAD BOWN: So I think if you take the United States and you compare it to a lot of other advanced industrial economies - oh, was that too much jargon?


0:05:50:>>CHAD BOWN: So you know, Germany, Japan, France, the U.K. - what a lot of these countries have in common is, over the last, you know, 15, 20 years, they're all producing, you know, more than before in terms of manufacturing output and those types of things. But you know, there has been a decline in - for the most part, the share of workers in the manufacturing sector. So this is something that kind of all countries have in common. When we had the crisis in 2008, 2009 - and I think this is a really important point that we need to talk about - this is where things really got bad for the United States. It got bad for other countries, as well, but it didn't manifest itself in the same way.

So what happened in other countries is they tended to lay off workers and have more unemployment. We had that, too, initially. But then, we had people that seemed to drop out of the labor force in greater numbers than did necessarily in other countries. So in other countries, it may have taken place through unemployment - increases in unemployment. But for the most part, people stayed in the labor force. They kept on looking for jobs. They kept tied to labor force, and that's something that's very, very different in the United States.

0:07:01:>>CARDIFF GARCIA: I mean, you would summarize those things as globalization...


0:07:05:>>CARDIFF GARCIA: ...Automation...


0:07:06:>>CARDIFF GARCIA: ...Sectoral shifts...


0:07:08:>>CARDIFF GARCIA: ...Changing consumer preferences...


0:07:10:>>CARDIFF GARCIA: ...Right? How should we think about the different effects of those things?

0:07:15:>>CHAD BOWN: So all of those jargony words - I didn't even know what those words meant that you just said.


0:07:21:>>CHAD BOWN: But all of them, obviously, you know, sort of contribute to this phenomenon. They're shocks that cause workers to have to change up what it is that they're doing, to sometimes change jobs. And it may be because consumers decide - you know what? - we don't necessarily want to have coal anymore as our main source of energy. Or we don't want to have typewriters anymore. We want to switch. So workers have to change jobs for all kinds of reasons. Sometimes it's about trade. But the way that this has shaken out in the United States turns out to have been very, very differently from the experience of other comparable countries around the world. And we thought - hey, maybe there's some lessons from those other countries out there that we could actually learn from.

0:07:55:>>CARDIFF GARCIA: OK. And then, Caroline, in terms of the policy response - right? - you've described the difference between the U.S. and these other countries as the U.S. using passive labor market policies and other...


0:08:08:>>CARDIFF GARCIA: ...Countries - there you go.


0:08:11:>>CARDIFF GARCIA: Hey, you're going to have to explain in a second - so yeah. Versus active labor market policy - so what is the difference between those two things? How would you describe it?

0:08:19:>>CAROLINE FREUND: Well, passive labor market policies are policies to ease the adjustment - so things like unemployment insurance; so helping workers while they're unemployed. Active...

0:08:32:>>CARDIFF GARCIA: Like a cushion.

0:08:33:>>CAROLINE FREUND: A cushion, yeah. Exactly, a cushion. Active labor market policies help them to actually get back into the labor force or to get employed again to find another job. So it could be job training. It could be wage insurance. It could be a big public works project that hires a lot of labor. So these kinds of policies help workers actually get new jobs when they're out as opposed to the passive policies, which just provide them with some income while they're out of the workforce - or out of their jobs.

0:09:09:>>CARDIFF GARCIA: In the U.S., there is such a thing as Trade Adjustment Assistance.


0:09:15:>>CARDIFF GARCIA: There you go, right?


0:09:17:>>CARDIFF GARCIA: It exists here. It's supposed to help people who've been displaced by the trade shock. Does that not work?

0:09:25:>>CAROLINE FREUND: You know, it does work. And there are certainly cases of the machine worker who's managed to retrain as a nurse, but it's very rare. And the problem with Trade Adjustment Assistance is it's been woefully small. So it's a pretty small program to begin with, so it doesn't help a lot of workers. There are administrative costs to getting it. So you have to show that you were displaced because of trade. And then if you think about all the workers who lost jobs for no fault of their own, why is it that those who lost it through trade should get this when there are many more who lost it through all those automation, globalization words that we...


0:10:08:>>CAROLINE FREUND: ...I mean automation, technology, consumer shifts in demand, etc.


0:10:15:>>CAROLINE FREUND: So...


0:10:18:>>CAROLINE FREUND: ...We want to help...

0:10:18:>>CARDIFF GARCIA: It's hard, people.

0:10:19:>>CAROLINE FREUND: Yeah.


0:10:20:>>CAROLINE FREUND: We want to help all workers who lose jobs. And I think the other problem with the Trade Adjustment Assistance is it makes it seem like trade is a worse way to lose a job or it's the way most jobs get lost. So if we reshape the discussion around workers more broadly, it's much more helpful for the dialogue.

0:10:42:>>CARDIFF GARCIA: Chad, something else that was clear in the work that you and Caroline have done is that the U.S. is also unique in how many people who fall out of the labor force end up on disability - right? - and the role that that could play in preventing people from coming back into the labor force.

0:10:58:>>CHAD BOWN: Yeah. And so what is really noticeable in the number - I want to say the word data, but I don't know if that's a jargony word or not - OK, data.

0:11:06:>>CARDIFF GARCIA: Not in this room.

0:11:06:>>CHAD BOWN: It's - at the same time, you have all of this stuff happening in terms of increased unemployment falling out of the labor market. You have massive expansion in terms of the number of folks getting onto disability. And, you know, when you look at the data, it's hard to make the argument when you look at the United States compared to other peer countries that somehow the American job environment got more dangerous for workers. It probably - you know, OSHA's really kicked in, things are going - so it's unlikely that that is the case. And yet there has been a massive take-up in disability insurance, which is, again, is another one of these cushioning types of programs the United States government provides for workers. But it isn't the kind of active labor market policy that encourages them, retrains them, helps them match to new jobs that keep them tied to the labor force.

0:11:56:>>CARDIFF GARCIA: OK. Last question, Caroline, before we talk about some policies that other countries have tried and the U.S. has not tried. The opioid crisis has in the last few years reached kind of tragic levels. To what extent does that play a role in preventing people from rejoining the labor force?

0:12:16:>>CAROLINE FREUND: Well, I think it's kind of like a vicious cycle. And, you know, Alan Krueger had done some very nice work showing that about half the prime-age working force that's male that's out of the labor force was on opioids and/or has a serious health condition and then a high share was actually on opioids. And there seems to be some relation. So it could be that because you were disabled, you leave the workforce. And then you get addicted, which makes it harder to get back in. Or it could really go the other way, which is because of the crisis - it's because you're using the drugs, it's harder to keep working. So it's hard to know which way the causality goes. But it's clearly a compounding causality. It's clearly - there's clearly some intertwining of the opioid crisis and what was happening with the labor market.

0:13:26:>>CARDIFF GARCIA: OK. Well, you've just heard INDICATOR episode 1 of 2 - might have been for an exclusive audience depending on how the audio comes out. Now we'll do episode 2 of 2. So we've just defined the problem. Now we're going to talk about policies that have been tried elsewhere - not tried in the U.S. And we'll look at the evidence for whether or not they work. So, Chad, I will start with you. All right. Startup programs - how could those potentially help or not help workers or people get back into the workforce?

0:13:57:>>CHAD BOWN: So we don't have - so by startup programs, you know, you think of, I guess, entrepreneurs - right? - so people going out and starting up their own businesses. We don't have a lot of evidence to suggest that this kind of thing would work. Governments haven't spent a lot of money on this. There has been some talk recently about the sort of sharing economy. So imagine, you know, that maybe things like Uber or Lyft or, you know, renting out your apartment to Airbnb, that might be a way to help improve labor market outcomes in - for particularly unemployment.

While possible and feasible, I think it's also pretty clear that that's probably not going to work to address the biggest underlying problems - the folks that are most destitute. They aren't the folks that have, you know, a reliable vehicle. They don't have, you know, a particular nice place to rent out to, you know, visitors from New York coming in to Washington, D.C. And so that's not likely to be something that's actually going to serve too well as a model, I think, in the future.

0:14:57:>>CARDIFF GARCIA: You have to already own a certain amount of stuff.

0:15:00:>>CHAD BOWN: Assets.

0:15:02:>>CARDIFF GARCIA: Yeah, I think so - for that to work. Yeah. OK. That was - it sounded like your very polite way of saying that people who think that these sharing economy companies are going to be in any way meaningful help to people who are out of the labor force is just total b*******, right?

0:15:21:>>CHAD BOWN: They're trying their best, like all of us.


0:15:25:>>CARDIFF GARCIA: Caroline, the next policy idea - public works programs.

0:15:30:>>CAROLINE FREUND: Well, I think if there's a real shovel-ready project that is big and important for the country - and I think we can think of some infrastructure investments that certainly meet that goal - they can certainly, you know, they stimulate labor demand and they help. What doesn't and what research shows doesn't work is kind of make work projects, things that are public works just to employ people because it turns out that then being employed in these types of projects is a signal that you're actually not that employable. So people who have worked in those kind of projects have a harder time finding employment later on.

0:16:16:>>CARDIFF GARCIA: So the idea here is that some of those programs might be temporary, and if they really worked, those people after the expiration of the program would be able to get jobs in the private sector.

0:16:25:>>CAROLINE FREUND: Yeah, exactly.

0:16:25:>>CARDIFF GARCIA: And you're saying they typically don't.

0:16:27:>>CAROLINE FREUND: Exactly.

0:16:27:>>CARDIFF GARCIA: OK, idea number three - Chad, employer subsidies. What are they, first of all?

0:16:33:>>CHAD BOWN: Right. So the idea here is, you know, the government might create some, you know, either tax incentives or direct transfers to firms to convince them to hire folks that they might not have.


0:16:49:>>CARDIFF GARCIA: He was actually just ordering a drink.

0:16:51:>>CHAD BOWN: Yeah.


0:16:54:>>CHAD BOWN: People - folks that they might not otherwise, right? The hard part, of course, is, you know, when it comes down to it, the firms may have hired those people anyway. So being able to identify, you know - are these types of programs actually successful and going to be designed in the right way? - is one. Also, it may very well be the case that taxpayers and society just prefer to give money to the people that actually need it. And they're a little bit worried about giving money to companies where who knows what it is that those companies are actually going to be doing with it? So I think there's some accountability issues. This is a kind of program that perhaps can work and has shown to work in certain circumstances, but it also - you know, it can be costly, and it has some baggage that comes along with it.

0:17:38:>>CARDIFF GARCIA: Yeah. That's interesting. And you and Caroline write about a kind of strange paradox or contradiction or whatever it's called, which is that workers typically would prefer to get money from their employers - right? - to show that they're getting something done and that they earned it. And you're saying societally, though, people might prefer for the money to go straight to the workers rather than through the companies because who knows if the companies were going to hire those people anyways?

0:18:04:>>CHAD BOWN: That's right. And I think there's, you know, there's some research in economics looking at these issues of stigma - right? - and what it means to, you know, to get government programs versus getting paid by companies. And that can have, you know, psychological attachments and things to it - and stigma. And I think those are important elements.

0:18:24:>>CARDIFF GARCIA: OK. Caroline, next policy idea - wage insurance. What is it, and does it work?

0:18:30:>>CAROLINE FREUND: So the wage insurance works the other way, which is to the employee. And it's probably, I think, the most effective. The difficulty is it goes to the employee. So it has that problem that the worker is getting the money, but it's much easier to target because you can target those that are hard to employ and offer them a top-up when they get employed.

0:19:01:>>CARDIFF GARCIA: The idea here is that if somebody loses their job and then ends up taking a lower-paying job, the wage insurance will top them up to the level that they had before.

0:19:11:>>CAROLINE FREUND: Or something in between the level they had before. You can do it different ways. But the idea is it encourages them to get back into the labor force a lot more quickly because they might say, oh, that job's not worth going back in for. But with the wage insurance, it is. And one of the things we've seen is that workers that get back into the labor force more quickly do better in the long run. So the longer you are out, the worse it is for your earnings later on.

0:19:41:>>CARDIFF GARCIA: OK. Next policy idea, Chad - job-training programs.

0:19:47:>>CHAD BOWN: So this is education, right? And who doesn't love education, right? I think this is the panacea. And it's great. I...


0:19:58:>>CARDIFF GARCIA: The whole phrase - there is no panacea - I just don't like it. It's not even jargon.

0:20:03:>>CHAD BOWN: The hard part, though, is, I think, implementation of it. So I think it's definitely something that we strive for. The hard part is identifying, you know, what are the jobs of the future that we should be retraining people toward? What are the skills that folks are going to need to have in order to be able to work effectively in those jobs? How do we encourage them to do so?

And so there may be financing problems that come up along the way. While you're doing this retraining, you're not actually working, and so you're going to have to, you know, get some income from - you know, there is a period where you're not really in the labor market while you're involved in this retraining. So these are complicated and costly programs to run as well. But I think these are some of the most valuable because they actually build skills that are useful for the labor force in the future that are very different from a lot of the other types of approaches that are out there. And there's good evidence, I think, in other countries - Germany in particular - that a lot of these types of programs can work if they're designed effectively.

0:21:01:>>CARDIFF GARCIA: OK. Last policy idea, Caroline - job-placement services.

0:21:05:>>CAROLINE FREUND: These actually work extremely well. And in the modern age, actually, they can even be electronic. So these are just really to help workers match with the existing pool of jobs that are out there. And they also help workers present themselves - so maybe how to create their CV, or something like that, and then find the right job. But the problem with this kind of solution is it does seem to work to help people get back into the - into a paying job more quickly, but what it doesn't do is create any labor demand. So it's not going to solve the...


0:21:45:>>CAROLINE FREUND: Oh.


0:21:49:>>CAROLINE FREUND: It's not going to solve the problem if firms aren't interested in hiring workers. And so in a big recession or something, it might end up displacing, leading to some workers getting hired. But it just means other workers aren't. So it's not really going to solve the employment problem, though it is helpful to ensure that people find jobs quickly.

0:22:17:>>CARDIFF GARCIA: It works best in combination with the other ideas.

0:22:19:>>CAROLINE FREUND: And that's actually what a lot of the research shows, that these types of programs work much better when you have a menu of them working together than when you just try one or the other.

0:22:32:>>CARDIFF GARCIA: I want to close by getting each of your thoughts on something that's actually happened in the last few years, which is that the labor market has improved. And especially in the last couple of years, wage growth has accelerated. People are getting raises at a faster pace, I think is the way to describe that without the jargon. And there is even some preliminary research showing, for example, that people are coming off disability rolls to get back into the labor market. It seems like the thing that has to be combined with all of these ideas is a kind of macroeconomic policy that pushes for a sustainably - I mean, really tight labor market that keeps people employed and that makes companies desperate, even, to hire workers, that that has to be the thing that sort of is combined with all of these ideas.

0:23:23:>>CAROLINE FREUND: Yeah, a growing economy is a lot better than a stagnant one...


0:23:27:>>CAROLINE FREUND: ...For jobs.

0:23:30:>>CHAD BOWN: Yeah, no, I think that's an incredibly important point. The - the problems that we've identified in this work aren't particularly relevant for this particular moment in time of, you know, April 2019. But this was a major, major problem for about eight or nine years in the United States. And the question was, why is this happening? Why is it taking so long to get all these people back into the labor force? And could we be doing things differently to help facilitate that? And there is going to be a next recession, right? And so the question is, the next time around, will we be able to learn from the lessons of either other countries, what we didn't do after this recession, and perhaps do a better job then.

0:24:10:>>CAROLINE FREUND: And just to add to that, what we saw in other countries is more the unemployment rate going up, whereas what happened in the U.S. is people leaving the labor force. And it's different ways of dealing with the same problem. So employment actually - employment rates - I should be getting lots of dings. Employment rates...


0:24:32:>>CAROLINE FREUND: ...Look...

0:24:33:>>CARDIFF GARCIA: Really, we've defined all the jargony terms by now. So...

0:24:36:>>CAROLINE FREUND: ...Look more similar with the U.S. and other countries. But overall, it's better for workers to stay in the labor force because then they're much more likely to get another job when one comes along. There's a little bit of a lag if it means also they've been out for a long time and getting back in and so forth.

0:24:55:>>CARDIFF GARCIA: OK. We hadn't discussed doing like an audience Q&A before. But let me give you a choice, OK? By a show of hands, quick audience Q&A or get a drink before the next panel. Be as rude as you want, OK? It's OK. So first, who wants to do an audience Q&A?


0:25:18:>>CARDIFF GARCIA: You know what? There's only one. So we'll just take your question, and then everybody will get a drink. Yeah, let's do that.


0:25:23:>>CARDIFF GARCIA: One question, audience Q&A, one question. Let's do it. Hope it's good.

0:25:29:>>CHAD BOWN: Can it please be about tariffs?


0:25:35:>>UNIDENTIFIED AUDIENCE MEMBER: I guess, sure. Do you feel like the current tariffs are really impairing the current trade environment? Or do you feel that it's just being displaced to other parts of the world or different countries or different populations? Do you feel it's beneficial to other people to have what's going on? What are your thoughts on that?

0:25:55:>>CARDIFF GARCIA: Can you repeat the question?

0:25:56:>>CHAD BOWN: Yeah, so - so the question is tariffs, what's up with that? Not good, not good. So I think what we're beginning to see in terms of the evidence is there actually is an impact of the tariffs that are showing up. Some of it's positive, right? So if you work in a steel company and - you know, you're benefiting from these higher prices. The steel companies are doing great. The workers for steel companies are probably benefiting a bit from that. But it's really everybody else in the economy that isn't - right? - the ones that now have to pay higher prices for steel to be able to make auto parts or to be able to build bridges. And so all of the consumers and taxpayers are being hurt a little bit. And when you add it all up, the losses to those folks are turning out to be bigger than the, you know, slight gains to the steel industry itself. So...

0:26:42:>>CAROLINE FREUND: And just to add, there's some others who are gaining who live in other countries because it turns out that Brazilian soybeans have grown dramatically in exports to China and Mexican and Canadian and European Union and Malaysian. And exports of products that are tariffed in the U.S. - I don't know if tariffed is jargon or not even a word - but those products have seen big increases from other countries. So there are actually - right now there's a little bit of gains to the rest of the world. I don't want to emphasize that as a good thing because U.S. and China are clearly losing. But we actually have seen that kind of trade diversion...


0:27:32:>>CAROLINE FREUND: ...That would be expected.

0:27:35:>>CARDIFF GARCIA: All right, the next panel, I think, starts at 9:30. Please, a big round of applause for our two guests.


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