September 20, 2017
In his column today (also discussed by Dean here), Eduardo Porter writes: “as Professor [Alan] Krueger noted, once workers stop looking for a job, it is tough to draw them back in. ‘After they leave the labor market,’ he said, ‘people reorganize their lives.‘“
If meant to apply to all people not in the labor force, this is too sweeping.
In a working paper, Chen Song and Chao Wei compare unemployed adults with non-disabled, non-retired (NDNR) adults who are not in the labor force. They find that NDNR men who are not in the labor force look a lot like men who are in the labor force and unemployed.
In particular, NDNR men have “similar transition rates to employment…about two to five months later.” Based on this and other similarities — including demographics, time allocation, and life satisfaction — Song and Wei argue NDNR men who are currently counted as not in the labor force should be reclassified as unemployed. If NDNR men not in the labor force had been counted as unemployed, there would have been no decline in labor force participation of prime-age workers between 2013 and 2015.
Among NDNR women, Song and Wei find less similarity between unemployment and NILF status. For example, NDNR women who are out of the labor force are about half as likely to transition to employment in subsequent months as unemployed women. Still, about 20 percent of NDNR women do transition to employment within a few months.
The recently developed non-employment index (NEI) developed by economists Andreas Hornstein, Marianna Kudlyak, and Fabian Lange takes account of heterogeneity in transitions to work among those currently categorized as not in the labor force. It includes people not in the labor force based on their likelihood of transitioning into employment. The NEI is currently about 3.5 percentage points higher than the standard unemployment rate.
Research like should get more attention in public debates about labor force trends. It also undercuts another claim made in the Porter article, the idea that the problem is “the kind of workers on offer” rather than the compensation and quality of the jobs on offer.
