The housing bubble was in full swing when Gary Nielson started his home design firm in 2004 in Eugene, Ore. The civil engineer and architect's earnings for the first few years were encouraging. But in 2007, Nielson's earnings dropped in half. In 2008, as the bubble burst, they collapsed further. By 2009, he made very little money.
Too young and poor to retire, but too old to start over, Gary was now 60. He put out hundreds of applications all over the country, with no luck. So last summer he signed up for trucking school. "I had just gotten paid my last installment of my last job, with no work on the horizon, and had just enough for trucking school," Nielson said. "I saw the ad and 48 hours was on my way."
As he finished trucking school, he finally got an offer from a local design firm. But that job quickly evaporated. "I realized I could not keep up with the young kids right out of college," he said. He was let go after three months.
Now drawing early Social Security, Nielson is a single number in a turbulent stream of data that shows an ever smaller ratio of Americans working. The percentage of adult Americans working or looking for work rate fell from 67.5 percent in 2000 to 64 percent in 2011. That may not sound startling, but in historical perspective it borders on free fall.
Labor force statistics have lately become a flashpoint of controversy. Some argue that work participation rates hide the real unemployment rate, as discouraged workers slip off the unemployment charts. Lost workers, they argue, will reappear as things improve, causing employment numbers to tank again.
Others point to the falling labor force participation rate as proof that the economy is fundamentally unsound, especially given the sharp decline of men in the workforce. A few conspiracy thinkers even suspect the Labor Department is cooking numbers to fudge unemployment for the White House.
The truth, far more complex and interesting, leads to the underbelly of key economic and social upheaval, including landmark changes like the collapse of the manufacturing sector, a steady rise in disability claims, the shifting activities of women and the sudden aging of the baby boom generation.
The significance of these shifts is found in the spiraling growth of entitlement burdens, as fewer and fewer workers support more and more disabled, retired or idle adults, says Don Grimes at the University of Michigan, who studies labor decline in Michigan.
Much of the mystery of fading participation lies in a mass of aging baby boomers, the post-war kids born between 1946 and 1964, who steadily moving through their prime working years over the last decade.
As they retire they replace the baby bust, a much smaller Depression-era generation. Because the retired baby bust group was small, work participation rates while the baby boom generation was in its prime were artificially heightened, according to Mitra Toosi, an economist with the Bureau of Labor Statistics. That boost is now over. Whether by choice — or suddenly or unwillingly like Gary Nielson — Toosi said, baby boomer exits account for much of the sharp decline in workforce participation since 2008.
Baby boomers are actually far more likely to keep working than earlier generations, and for many reasons — jobs are less physically draining, medicine has extended vitality, Social Security now pushes older workers to keep going and market reversals have erased nest eggs. So while 64 percent of those ages 55 to 59 worked during the mid-1980s, 73 percent worked in 2011, according to Bureau of Labor Statistics data.
But while productivity of older adults is rising as a percentage, their participation is still much lower than younger workers. And the boomer generation is vast. About half of the total loss of labor participation since 2000 is baby boomer aging alone, argues a recent paper by three economists at the Chicago Federal Reserve Board. Many of these, like Nielson, are not exiting the workforce voluntarily. But they are out for good, and now become a long-term drain on those who remain in the productive workforce.
At the other extreme are young workers, whose workforce engagement has fallen dramatically in recent years. In the mid-1980s 68 percent of the 16-to-24-year-old cohort was in the workforce. By 2011 only 55 percent were. The decline began in 1989 and has been steady since, according to labor statistics.
This youth decline hits at every angle. In 1989, 45 percent of 16- and 17-year-olds were in the workforce, which includes part-time and summer employment. By 2011, a mere 22 percent of this age group was working. Young adults aged 22-24, who should be largely finished with schooling, also saw their workforce engagement fall from 82 percent in 1989 to 75 percent in 2011.
The drop in high school employment is less easily explained. Some observers point to cultural changes, with greater emphasis on academic and extra-curricular activities, while others look to economic shifts that disadvantage less-skilled workers.
"Last hired, first fired," Toosi said. She also noted that in times of economic stress, younger workers prolong education and may opt for graduate school. But the declining youth trend has held through recessions and recoveries, and may have as much do to with shifting culture as cyclical economics.
A 2011 report by Mark Doms, Chief Economist at the U.S. Department of Commerce, pointed to increased educational emphasis as a key driver in falling youth employment. "Last July, fewer than half of young people had a job," Doms wrote, "the lowest level since records were first kept in 1948. The flip side is that in October 2009, 70.1 percent of 2009 high school graduates were enrolled in colleges or universities, the highest level on record for the series, which began in 1959."
Women climb, men fall
Other than age, the other huge labor force change is gender. The infusion of women into the workplace since the 1960s has been remarkable. In 1970, 43 percent of adult American women were working or looking for work. By the mid-1990s, that number was pushing 60 percent and it held strong through all economic cycles. Today, it stands at 58 percent, according to the Bureau of Labor Statistics.
The other side of the coin is the collapse of the male worker, a decline that began in 1948 when 87 percent of adult males were in the workforce. From that moment the male work rate falls in a steady slide to 71 percent in 2011. The line falls regardless of recessions, booms or population bubbles like the baby boomers.
Multiple explanations compete to explain this collapse. University of Michigan researcher Don Grimes has been studying it in Michigan where traditional manufacturing jobs have steadily disappeared and men with lower education levels have struggled.
"Even the jobs that remain have more skill requirements," Grimes noted. "Today's manufacturing jobs require technical training and even the military is no longer interested in those who have not finished high school and do not score well on tests."
In many cases, Grimes said, wives continue to work, as manufacturing or construction jobs dry up and the husband slips into long-term unemployment.
In addition to the structure of the job market, Toosi suggested that Social Security Disability has served as an outlet, skimming men off the job market. The idea that disability serves as an overflow for the unemployed and the unemployable goes back to "The Disabled State," a 1984 book by Deborah Stone. Disability awards since 1985 seem to confirm Stone's thesis.
In the mid-1980s disability claimants equaled 2.3 percent of the U.S. workforce, which held steady until 1991. A steady annual increase began in 1992, lasting until 2008, when the disabled had doubled to 4.6 percent of the workforce. Over the next three years disability spiked sharply, and by 2011, 5.4 percent of the workforce was disabled, according to labor data.
Paying the piper
Current debate over the collapsing labor participation centers on the unemployment rate — and whether the current numbers reflect the true state of economic disrepair. But as public debt, pensions and healthcare burdens escalate and a shrinking manufacturing base denies opportunities to willing workers, there is much more at stake here than the credit, blame and spin of presidential politics, according to the University of Michigan's Don Grimes.
"We could be facing a much bigger problem," Grimes said, pointing to the experience of Europe, where aging, debt-ridding nations are now struggling for equilibrium. "The experience of Europe is that they essentially sustained a lifestyle with borrowed money," Grimes said, adding that as the population-aged resources "dried up, there was no income flow, no tax revenue. It's a vicious cycle."