Why Middle Skills Employers Should Care About the Labor Force Participation Rate

Posted by Penn Foster on March 13, 2019

The labor force participation rate might seem like one of those statistics that's more interesting to governments than it is to business leaders. However, in a tight labor market, with an unemployment rate of just 4%, employers should be concerned to learn that there are millions of potential employees in the prime of their working life who don't have a job and aren't looking for one. What's worse, a disproportionate number of these people are middle skills workers.

The scope of the challenge

The US Bureau of Labor Statistics tracks the workforce participation rate for all workers. The data is broken down by age. Workers between the ages of 25 and 54 are considered to be in the prime of their working lives.

High rates of non-participation from workers in this age group present a loss of potential for the country as well as for individual employers. Which is why it's so concerning that between 1996 and 2016 the number of prime-age men who were not working or actively looking for work grew from 4.6 million to 7.1 million.  

A paper by Didem Tuzemen, an economist at the Federal Reserve Bank of Kansas City, dove deep into the data to try to understand the reason for this trend. The paper focused specifically on males between the ages of 25 and 54. Keep in mind that Tuzeman looked at non-participation rates, while the Bureau of Labor Statistics tracks participation rates. They're essentially approaching the same problem from opposite directions.

Tuzeman's data showed an interesting trend. Historically, workers with lower educational attainment have had higher non-participation rates than their more-educated counterparts. The data revealed that this was still the case. The rate of non-participation increased most for men with less than a bachelor's degree. The surprise comes when you break that data down even further to compare the non-participation rates of those without a high school degree with those who have a high school degree or some college.

The non-participation rate for men without a high school degree rose by only 10.6 percent. Meanwhile, the non-participation rate for men with only a high school degree rose 70.3 percent and the rate for those with some college rose 61.7 percent. What this shows is that low-skilled workers and high-skilled workers are mostly staying in the job market, but those men who would most likely be middle skills workers have chosen to drop out of the job market at an alarming rate.

Level of Education	Rise in non-participation 1996-2016
No High School Diploma	10.6%
High School Diploma	70.3%
Some College	61.7%

Even more disturbing, non-participation rates increased most for men on the younger end of the spectrum, between the ages of 25 and 34. Their non-participation rate increased 67%, compared to men in the 35-44 age group who saw only a 25.1% increase. A continuation of this trends could lead to major shortages as the oldest workers retire.  

Factors driving middle-skills workers out of the workforce

If we want to bring non-participating workers back into the workforce, we first have to understand what drove them out. The most common reason for not being in the workforce was disability or illness, the least common was retirement.

While employers have little control over those two reasons, the reasons in the middle present some room for hope. In 2016, 13.8 percent of non-participants said they weren't working because they were in school, 14.6 percent said they were taking care of family, and 13.2 percent named "other reasons." Unfortunately, the confines of the survey did not allow them to state what those other reasons are.

Some Reasons For Non-participation	Percentage of Non-participants
In School	13.8
Taking Care of Family	14.6
Other Reasons	13.2

So Tuzeman looked to see if his logical explanations for what those other reasons might be were supported by the data. Were workers

• Relying on another source of income?
• Depending on public assistance?
• Using pain medication or other substances that made them ineligible for work?

As far as he could tell, the answer to all of these questions was no. Almost half of all households with a prime-age male who was not participating in the labor force fell into the bottom quintile of income, according to the Brookings Institute. So it's unlikely that other income sources, such as a spouse who makes enough to support the family, have contributed significantly to the increase in non-participation.

The number of households relying on public assistance also hasn't risen by nearly enough to account for the trend, and it's hard to track whether more men are relying on pain medication that prevents them from working. Besides, those that are may fall into the category of injured or disabled rather than "other reasons."

One clear culprit is the change in skill composition required for jobs. Technology and globalization means that middle skills jobs have changed drastically. Many of these jobs, once seen as routine and repetitive, have been revolutionized by technology. The routine portions of the job have been automated, and demand for workers who can do physical work using creativity and communication skills has increased.

In 1996, 53.9 percent of all jobs were middle-skill jobs. According to the paper, that number had dropped to 43.2 percent by 2016. This decline disproportionately affected prime age men, who held the majority of middle-skills jobs. While some workers compensated by moving up into high-skill jobs and others dropped back to fill lower-skill positions, many dropped out of the labor force all together.

Survey evidence suggests these non-participating men are unlikely to return to the labor force unless current conditions change significantly.

A ray of hope

In the tail end of 2016, something interesting happened. Labor force participation rates started to reverse their downward trend, according to Bureau of Labor Statistics data. From the 2014-2015 low of 80.9 percent, the 2018 average had risen to 82.1 percent.

With no major changes to employment infrastructure and training, this positive momentum will likely die out. The Bureau of Labor statistics projects that the labor force participation rate for 25-54 year olds will remain close to the 2016 average into 2026.

But a projection is just an educated guess. It's not a guarantee. We tend to agree with Tuzeman who concluded:

"Ending this vicious cycle-and avoiding further increases in the non-participation rate among prime-age men-may require equipping workers with the new skills employers are demanding in the face of rapid technological advancements."

The Federal government is poised to play a role in this, but it's going to take a focused effort from many sectors to turn the tide. Employers will need to lead by example. By providing opportunities for your workers to upskill, and by remaining open to less skilled workers who can be trained, you help decrease the non-participation rate. More workers in the job market creates a more robust pool to choose from when hiring for hard to fill middle skills roles.

Penn Foster helps employers upskill workers and create employee training solutions. Contact us today to get started.