What Happened To U.S. Workers? : The Indicator from Planet Money The share of people ages 25 to 54 in the labor force has fallen in the past couple of decades. What happened? Listen to an excerpt from our live event with the Financial Times Alphachat.

What Happened To U.S. Workers?

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CARDIFF GARCIA, HOST:

Everyone, it's Cardiff. On April 11, our friends at the Financial Times' Alphachat podcast invited THE INDICATOR to host a panel at a bar in Washington, D.C. The join event was called A Night Of Jargon-Free Economics, and there was even a jargon bell that people in the audience could ring each time someone on the panel used jargon. I'm serious. And it sounded like this.

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GARCIA: On that panel with me were Caroline Freund of the World Bank and Chad Bown of the Peterson Institute. And we were there to discuss a central economic mystery in the United States. What happened to all the workers? And for today's episode of THE INDICATOR from Planet Money, we are going to play an excerpt from our conversation. Then after the break, you'll hear us jump right into it.

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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...

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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. (Laughter) 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, 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?

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.

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 macro pressures might be? And then sort of explain, like, why you think it is the U.S. stands out here.

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

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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 the labor force, and that's something that's very, very different in the United States.

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 countries...

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GARCIA: There you go.

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GARCIA: You're going to have to explain in a second. So yeah - versus active labor market policies. So what is the difference between those two things? How would you describe it?

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...

GARCIA: Like a cushion.

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.

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.

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...

GARCIA: Not in this room.

BOWN: ...Is - 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.

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.

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?

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.

GARCIA: Thanks again to the Financial Times and its excellent podcast Alphachat for hosting us. And if you want to listen to the full, unedited discussion of the panel or read the transcript of that discussion, go to npr.org/money. This episode was produced by Constanza Gallardo, who was also at the event, by the way, making sure that everything worked. And THE INDICATOR is a production of NPR.

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