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Prime-Age Labor Force Dropouts May Never Return To Work, Fed Paper Says

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Will Racke Immigration and Foreign Policy Reporter

The share of men in their prime working years in the U.S. labor force has fallen steadily since the 1960s and is unlikely to bounce back, given the realities of today’s job market, according to a new report from the Federal Reserve Bank of Kansas City.

In the decade after World War II, the labor force participation rate for men aged 25 to 54 years old hovered between 97 and 98 percent. Today, that figure stands at about 89 percent.

One reason for the decline is falling demand for middle-skilled work as U.S. jobs have become more concentrated in low- and high-skilled sectors, according to Didem Tuzemen, an economist at the Kansas City Fed who wrote the paper. This phenomenon, known as “job polarization,” has hollowed out the job market for workers employed in jobs requiring routine tasks that are easily replaced by machines.

“As the demand for workers in middle-skill jobs declined, some displaced middle-skill workers were able to transition to high-skill jobs, while other workers moved to low-skill service sector jobs,” Tuzemen wrote. “However, most of the displaced middle-skill workers permanently dropped out of the labor force.”

Although the labor force participation rate among prime-age males has been falling steadily for generations, the downward trajectory has become more acute in the last two decades. From 1996 to 2016, the share of prime-age men either working or actively looking for work fell from 91.8 percent to 88.6 percent.

In 1996, 4.6 million prime-age men did not participate in the labor force. The number of labor force dropouts had climbed to 7.1 million by 2016.

The disappearance of middle-skilled jobs has disproportionately affected men because they are more likely to be employed in routine production sectors, according to the Kansas City Fed paper. In 1996, 57.8 percent of all employed, prime-age men worked in middle-skilled categories such as sales, production, construction, installation, maintenance, and transportation.

The share of employed men in middle-skill occupations had declined by 8.5 percentage points by 2016, while the share prime-age men working in high-skilled and low-skilled sectors rose by 4.5 and 4.0 percentage points, respectively.

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Though job polarization has been partly spurred by technological changes, it is also the result of weakening private sector unions and sending production jobs overseas, according to Tuzemen.

“Many jobs in this category, particularly those in manufacturing, have been offshored to countries where workers can perform similar tasks for lower wages,” she wrote. “In addition, some firms have contracted out portions of their businesses to workers in foreign countries through outsourcing.”

The steady decline of the labor force participation rate among prime-age men has coincided with persistently high rates of disability or illness within that age cohort. Though the overall share of prime-age men claiming disability as the reason for nonparticipation in the labor force declined from 56 percent in 1996 to 48.3 percent in 2016, a majority of younger prime-age males still reported disability as their reason for dropping out in 2016.

Tuzemen suggests this has created a vicious cycle in which job polarization has rendered the skills of many less-educated
workers obsolete, leading to depression and illness among these displaced workers. Those health conditions then become additional barriers to long-term employment.

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