4 Things Employers Need to Know About Labor Force Participation

Labor participation rates are at historic lows. What does that mean for employers? Indeed Chief Economist Tara M. Sinclair explains.

Today’s jobs report from the Bureau of Labor Statistics revealed that the labor force participation rate—which measures both employed people and unemployed people who are actively looking for a job—is at 62.6%, unchanged from last month.

So, even though job growth continues at a steady pace, we’re still seeing labor force participation stuck below 63%, a rate not seen since the late 1970s. And according to a recent OECD analysis, the decline of the labor force participation rate in the US is the largest decline experienced by any developed country (among 38 countries studied).

Although a small labor force may be a concern, the news isn’t all bad. Here are four things employers should know about the labor force participation rate:

Declining labor force participation can be caused by increased educational enrollment

In many developed countries, labor force participation rates for young people have been declining over the past few decades. Over this same time period, however, educational enrollment rates have been increasing.

As young people pursue higher levels of education, they delay their entry into the workforce. In the US, a portion of the decline in labor force participation is caused by this educational enrollment. Employers may be able to balance workforce needs with students’ time commitments by offering flexible employment options such as part-time jobs.

On the whole, the increasing rate of educational enrollment is good news for employers. High skill roles are becoming more and more numerous, and employers will be looking to academic institutions all over the world to fill these positions. So while it may seem like the talent pool is shrinking in the short term, a more qualified workforce may emerge in the near future.

Men are dropping out of the workforce in large numbers

From a demographic standpoint, one of the most concerning figures from the OECD report is the rapidly declining participation rates of men in many developed countries, including the US. Nationwide, the rate for men age 25-54 has declined from 92% in 2000 to 88% today. This set of men has traditionally made up the greatest portion of the workforce, and their exit means a significant decrease in the amount of talent available.

There are a few things that explain the declining participation of men. For one, incarceration rates are the highest they’ve ever been—nearly one in 100 adults in the US is in prison or jail, and 93% of incarcerated people are men.

But men were also heavily affected by the recession, and this is true in many developed countries. We have been seeing declining labor force participation from men in Canada, France, Ireland, and Japan, to name a few. And even though the economy is now recovering, many working-age men have not made it back into a job. This is in part because of the steady decline of employment in industries traditionally dominated by men, such as manufacturing.

In light of an ongoing talent shortage, employers may need to consider what is still deterring men from seeking work and how to adjust job offerings to lure them back—whether it’s job training programs for those who are changing career tracks or adjusting job postings to respond what people are after.

Labor force participation rates for women have declined for different reasons

Over the past few decades, the labor force participation rate of women age 25-54 had been increasing in the US. In recent years, however, we’ve seen that rate decline from 74% in 2000 to 70% today. This may also be somewhat explained by educational enrollment—women earn 57% of bachelor’s degrees awarded by universities. It may also be explained by more women choosing to work as stay-at-home mothers. Data from the Pew Research Center shows that in 2012, nearly 30% of all women with children under the age of 18 did not work outside the home, increasing from a modern-era low of 23% in 1999.

As with students, offering more part-time and flexible jobs could be one way employers attract women with families back into the workforce. At the same time, employers should implement policies that make it easier for both mothers and fathers to balance work and family.

Given the low participation rates of men, it’s also important to acknowledge that women have increasingly become the sole or primary earners in their households—in 40% of households with children, women are the breadwinners. The recent spotlight on wage equality has compelled many employers to examine discrepancies in pay and make the solution a corporate focus.

The population is aging, but people are staying in the workforce longer

It’s not necessarily news that many people are delaying retirement, but the OECD report reveals how universal this phenomena is. For most developed countries, the labor force participation rates of people age 55-64 now hovers around 60%. In the US, it’s grown from 58% in 2000 to 61% today.

As labor force participation rates for prime working age people decline, employers may look to older workers to fill vacancies. As more and more baby boomers reach this age, it may be necessary to offer flexible solutions that enable them to prolong their working life. Otherwise, we could see a sudden loss of huge numbers of employees as this most-populous generation exits.

While all these forces contribute to low labor force participation rates, employers may have more agency and power to affect change than they realize. Companies can actively influence the trajectory of labor force participation by implementing strategies that bring more talent into the market—using data along the way to keep track of how many candidates are really out there.