Audio File: Ten Talk: Episode 4
Rick Babson: Hi and welcome to TEN Talk, the podcast by the Kansas City Fed. I’m Rick Babson, managing editor in public affairs, and your host for this episode. With me today is Didem Tüzemen, a senior economist in our Economic Research department. Thanks, Didem, appreciate you taking time to be with us here today.
Didem Tüzemen: Hi, Rick. Thanks so much for the opportunity to come on the show today.
Babson: You’re welcome. During your time here at the Kansas City Fed, I know you’ve written pretty extensively about labor and the economy and primarily about labor force participation rates. I was thinking it might be helpful if you you’d start by letting our listeners know what are we talking about when we mention labor force participation and why is it important that we study it and better yet to understand it.
Tüzemen: Sure. We group individuals into three categories based on their labor market activity. Those who have a job and are working are called employees; those who do not have a job but are available to work and actively searching for a job are called unemployed. The sum of the employed and unemployed individuals corresponds to the labor force of the economy and their share in the total population corresponds to the labor force participation rate. Then the third group of individuals are called not in the labor force, or not participating, who do not have a job or are not looking to find a job. The labor force participation rate is a very important concept because it tells us the share of bodies working or willing to work in the economy. In other words, it tells us the potential workforce of the economy. It is very important to understand this potential workforce when we’re thinking about or trying to predict the economy’s potential to produce and grow.
Babson: OK. Thank you … appreciate those explanations. Looking at what you’ve written most recently including an article in the quarterly Economic Review and then most recently in a Research Working Paper, you’ve been diving deeper in the recovery in labor force participation by prime-age workers, and by that we mean those workers ages 25 to 54, and looking at during and after the Great Recession. So, what happened to labor force participation during the Great Recession?
Tüzemen: As you mentioned, I focused on prime-age individuals in these studies because these individuals are in their most productive working years and the decline in their labor force participation has important implications for the future of the labor market and economic growth. Now during the Great Recession, prime age labor force participation and employment declined dramatically due to large-scale layoffs. More specifically, 5.7 million prime-age individuals lost their jobs between 2008 and 2011. While some of these displaced workers joined the pool of unemployed, others temporarily or permanently left the labor force, which lowered the prime-age labor force participation rate. During this time, the majority of the job losses among prime-age individuals were in routine, or what we call middle-skill jobs. In these jobs workers typically perform tasks that are procedural and rule based. These jobs are either routine cognitive jobs such as sales and administrative support occupations or routine manual jobs such as production occupations. In the past several decades, we have seen many of these jobs becoming automated by computers and machines, which means employment opportunities decline in these occupations. Moreover, this decline becomes more rapid during economic downturns. Between 2008 and 2011, 1.5 million prime-age workers lost jobs in routine occupations. And of these, 1.3 million were women without a bachelor’s degree. Over the same period, 2.3 million prime-age workers lost jobs in routine many locations and of these, 1.8 million were men without a bachelor’s degree. These are really big job losses.
Babson: Yes, indeed big numbers. Looking at after the recession, the recovery of course was a little uneven among all of the groups of workers that you’d studied with both non-college educated men and women experiencing the largest losses and the slowest recoveries. And in the strictest sense, were there any winners?
Tüzemen: Yes, we have seen an uneven recovery in the labor force participation of different groups within the prime-age group. Women historically have lower participation rates than men and individuals with lower educational attainment historically have lower participation rates than their more educated counterparts. Now to account for these differences we compare changes in the labor market outcomes across both sex and education level. By that I mean we consider four groups of individuals: men with less than a bachelor’s degree, or non-college men, men with a bachelor’s degree or higher; women with less than a bachelor’s degree, or non-college women, and women with a bachelor’s degree or higher. During the recovery, women without a bachelor’s degree continued to lose jobs while men without a bachelor’s degree saw only modest improvements. In contrast, college-educated individuals accrued almost all of the job gains during the recovery. As employment opportunities declined in routine occupations they shifted primarily toward non-routine cognitive, or what we call high-skill occupations. In these occupations, workers are typically highly educated and perform tasks requiring analytical ability, problem solving and creativity. As employment shifted toward high-skilled occupations, firms’ demand for more educated workers increased. And employment among college educated prime-age men and women rose by 3.6 million and 4.7 million, respectively, and three-fourths of these job gains were in high-skill occupations.
Babson: Now let’s talk a little bit about labor force participation rates.
Tüzemen: Sure. Prime-age men and women without a bachelor’s degree saw larger deterioration in their labor force participation rates during the recession than their college-educated counterparts. This is related to the severity of job losses as prime-age men and women without a bachelor’s degree saw larger employment losses during the recession than college-educated prime-age men and women. Moreover, the labor force participation rates of prime-age men and women without a bachelor’s degree have remained well below their pre-recession levels during the recovery. This too is related to job losses and lack of new job opportunities for their skill sets. Now turning to prime-age individuals with a bachelor’s degree, only women have seen their labor force participation rates recover to its pre-recession level.
Babson: So, why has the participation rate for women rebounded more rapidly?
Tüzemen: Well while both college-educated men and women faced slight declines in their labor force participation rate student economic downturn, women’s labor force participation has remained stable during the recovery period, a time when men’s labor force participation continued to decline. Moreover, prime-age women with a bachelor’s degree saw greater employment gains during the recovery. Therefore, only prime-age women with a bachelor’s degree have seen their labor force participation rate fully recover. But I must say their participation rates remains lower than men’s.
Babson: So, even though college-educated women fared the best of the four groups in terms of recovering what had been lost their labor force participation rate still lags the rates of college-educated and non-college men. Is that right?
Tüzemen: Well, I recently wrote an Economic Bulletin article with Thao Tran, and this article is about the recovery in the prime-age labor force participation rate since 2015. There we showed that college-educated women have primarily driven the recent rebound in the prime-age labor force participation rate. In particular our results show that both a greater share of college-educated women and a higher increase in their labor force participation rate relative to men are behind the recent rebound in the prime-age labor force participation rate. Notably, although the labor force participation rate of college-educated prime-age women has recovered to its pre-recession level it still remains well below the participation rates of both college-educated and non-college educated men. Therefore, this is also the college-educated women’s catching up with the labor market outcomes of their male counterparts.
Babson: OK. So we can see that prime-age women are really still far behind both groups of men. Are they gaining much ground? I mean is there any reasonably identifiable reasons for this difference?
Tüzemen: Well, this year the labor force participation rate of college-educated women reached 84.1 percent, which is 1 percentage point higher than its pre-recession level. But again it is well below the labor force participation rate of college-educated men, which currently stands at 94.1 percent, and below the labor force participation rate of non-college men, which is at 86.4 percent. So, what can be a reason behind this? A greater share of women report caring for family as their situation while not participating in the labor force, and this could be explaining some of this discrepancy.
Babson: OK. Alright. Thanks. So, I think another key part of both your Review article and your working paper looks at long-term shifts in skill sets and composition of jobs causing a decline in jobs and labor force participation, particularly among prime-age workers and even the disappearance of routine jobs.
Tüzemen: Yes. I mentioned earlier that routine jobs in the economy have been disappearing as firms are replacing workers in these occupations with robots and computers. In addition to technological advancements, increased international trade and offshoring of jobs abroad have also contributed to the decline in the employment share of routine jobs. Now as employment opportunities decline in these routine occupations, these opportunities shifted toward non-routine high-skill or low-skilled jobs, which are harder to automate. As I mentioned earlier, workers in these high-skill jobs are typically highly educated and perform tasks that require analytical ability, creativity and problem solving. And many of these jobs are managerial and technical in nature in fields such as engineering, finance and medicine. In contrast, workers in low-skilled jobs typically have no formal education beyond high school and working jobs that are physically demanding. Many of these jobs are of service oriented in fields such as food preparation, cleaning and security and protective services. This aggregate shift in employment away from routine or middle-skill jobs and toward non-routine low- and high-skill jobs is called job polarization in the economics literature.
Babson: As we look at the shifts in composition and the disappearance of jobs, were men and women affected in the same way, or were there some effects that were limited either to men or just women?
Tüzemen: The disappearance of routine jobs impacted both men and women who do not have a bachelor’s degree. Many prior studies focused on non-college men. So my contribution in my new working paper is to show that the labor market outcomes of non-college women have been similarly impacted by the disappearance of routine occupations in the past few decades. In terms of types of jobs lost there are some differences. When it comes to non-college men. They mostly lost jobs in routine manual occupations such as production jobs while non-college women mostly lost jobs in routine cognitive occupations such as office and administrative jobs.
Babson: OK. And clearly some jobs disappeared. And that generally attracts a lot of the attention we produce research like this. But aren’t there some jobs that came back and some high-skilled jobs? I wonder if you could tell us what some of the more and who who might have benefited.
Tüzemen: Yes, we have seen employment opportunities shift toward high-skilled occupations and this has benefited both men and women who have a bachelor’s degree or higher.
Babson: OK. Something else you identified in your papers, is that the skills demanded in the labor market are rapidly changing and automation and trade issues continue to render the skills of many less-educated workers obsolete. This lack of job opportunities in turn has been shown to lead to depression, illness, dependence on pain medication, primarily among displaced workers, and these health conditions may become further barriers to their employment. How big of an issue is this and then does it affect men and women equally?
Tüzemen: Yeah. Each month the Current Population Survey, which is the survey that I frequently use, asks respondents about their labor force status. Are you employed, unemployed or not in the labor force. Those who report their status as not in the labor force also respond to another question, which asks what best describes your situation at this time. For example, are you disabled, ill, in school, taking care of house or family, or something else. Based on responses to these questions, I find that the most common situations reported by not-participating prime-age men who do not have a bachelor’s degree was a disability or illness while their female counterparts most reported taking care of family rather than disability.
Babson: You also suggested that that ending the cycle and avoiding additional decreases in the participation rate of prime-age workers is going to require equipping workers with new skills and education that employers are demanding primarily in the face of rapid advances in technology. So, what exactly can we do to help all of this?
Tüzemen: Yeah. Well, based on their self-reported responses and lack of job opportunities may lead to depression and illness as you said and these how conditions may try and become further barriers to employment for prime-age men. Similarly, a lack of affordable family care may prevent many prime-age women from joining the labor force. So what can be done? Well, policies geared toward equipping workers with the new skills and education demanded by employers, or toward providing support for family care, may encourage higher participation among prime-age individuals.
Babson: Alright. Thanks, Didem. I appreciate your time and your insight today on prime-age labor force participation. You can find more of Didem’s research online at kansascityfed.org. The views expressed today are those of the host and guest and don’t necessarily represent the Kansas City Fed or the Federal Reserve System. Thanks for listening. You can find more of our TEN Talk podcasts at kansascityfed.org/tentalk.