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Abraham and Kearney examine secular decline in US employment over the past two decades

Robots and offshoring seen as important factors in decline of employment rates

In a new paper Faculty Associates Katherine Abraham (right) and Melissa Kearney dig into data to examine employment-rate decline. To date, the employment rate among non-elderly adults in the U.S., is 60.3 percent, remaining low when compared to other rich countries. There is a decline of 4.5 percentage points in the employment-to-population rate for U.S. population from 1999 to 2016. Different factors play a role in the decline of employment rates over decades. For men and women, the employment rate for adults between 25 and 54 years of age declines, as well as adults age 55 to 64 and 65 and older. Their analysis shows that those with less than a high school diploma or with a college degree experienced the largest declines. Labor demand factors are considered as key drivers of such decline.

Melissa KearneyFor example, expanded imports competition from China and adoption of industrial robots are among some of the demand factors that contribute to the declining rates of manufacturing employment. In numbers, a 302 percent increase in Chinese imports led to displacement of 2.65 million workers from 1999 to 2016 (estimates from Acemoglu et al. 2016). The effects of industrial robots are equivalent to a 0.37 percentage point decline in the employment-to- population ration. In addition, the availability of lifelong disability insurance through Social Security Disability insurance (SSDI) and the Veterans Affairs Disability Compensation (VADC) program has also contributed to falling rates of employment.

Expected factors, such as incarceration, don’t have a significant effect on declining employment. But a rise in incarceration rates shows low levels of labor force involvement even before a prison term. Thus, there’s only a modest aggregate effect of 0.13 percentage points between 1999 and 2016. Secondary factors driving such decline include; occupational licensing, geographic mobility and high-quality child care programs.

In conclusion, the researchers note, “while the positive effects of the cyclical recovery certainly have been welcome, a reversal of the secular decline in US employment rates will require a multi-faceted policy approach. Addressing the dis-employment effects of trade and technology will require expanded and enhanced opportunities for training and skill development to enable affected workers to be re-employed in new sectors. . . . [P]rogrammatic reforms to disability insurance programs that focus on early intervention to help people get back to work before they enroll hold promise, as do changes in the existing program to allow those with less severe disabilities to combine work and benefit receipt.”