Understanding Labor Force Participation Rates & Why People Drop Out of the Workforce

Understanding the Workforce

Labor force participation rates drop when fewer people of working age are either employed or actively looking for work. According to the U.S. Bureau of Labor Statistics, the percentage of working-age people between 25 and 54 years old peaked in 1995 at 72 percent, and it has been on a steady decline since. The St. Louis Federal Reserve, in a 2016 report, stated, “Simultaneously, nationwide the percentage of 16- to 24-year-olds not working is at 13 percent, the highest since WWII, and the percentage of those 55 plus not working is at 23 percent, the highest since WWII (Restrepo-Echavarria, 2016). They continued discussing declining labor participation rates by stating, “The clearest trend is the overall aging of the working-age population, largely because the baby boomers started retiring in the early 2000s. Similarly, more education implies spending more years in school, giving people later starts to their working careers” (Restrepo-Echavarria, 2016).

The combination of young people entering the workforce later and baby boomers taking early retirement can be harmful to the economy and needs to be addressed outside of pandemic recovery initiatives.

Reasons People Drop Out of the Workforce

There are several factors contributing to a national decline in labor force participation.

Retirement

The demographics tell us with absolute certainty that we will see more and more people leaving the workforce to retire. The hope is that they continue working until the age of 65 to give younger people more time to graduate, become trained and enter the workforce. When boomers retire early, as many have during COVID, this creates additional gaps in the workforce.

Education

To pursue their education, many youths are delaying entering the workforce. Technical training programs are an alternative that takes youth out of the workforce for a shorter period of time, while still allowing them to earn a good living. More youth need to become aware of this option. EDCs can play an important role here. By working as a conduit between K-12 education, companies, and technical schools, EDCs can help to direct youth towards careers they can enter shortly after graduating from high school.

Family Responsibilities

Raising children and caring for elderly parents are some of the family responsibilities keeping people, especially women, out of the workforce. This tool, from the U.S. Department of Labor, Women's Bureau, makes it easy to identify the percentage of women that are in the workforce in each county, broken down by the age of their children if any. There is often a clear correlation between having children at home and being out of the workforce. Programs designed to make it easier for women with young children to work could potentially increase their level of participation to those of their peers whose children are school-aged.

Disability

Workers who become injured on the job may never return to work, even though they could be trained to do something that fits their new level of ability. Programs designed to outreach to the disabled community, train, and match them with employers may help to bring some of these workers back into the labor force.

Long-Term Unemployment

People who no longer qualify for unemployment benefits, but have not found a job, may drop out of the labor force, believing that there are no jobs that meet their needs. This is another area where EDCs can work to help match the long-term unemployed with hiring companies.

A Complex Issue Requires a Collaborative Solution

Labor force participation rates, and why people leave the workforce, are complex. There is often intersectionality between the reasons people leave the workforce as well. Collaboration at the local, state, and federal level is necessary for developing impactful solutions – something we all need to work on together.

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