Labor Force Participation Trends
Writing in the 1930s, John Maynard Keynes referred to “technological unemployment . . . unemployment due to our discovery of means of economizing the use of labour outrunning the pace at which we can find new uses of labour.” Whereas in Keynes’ time technology was displacing primarily blue collar jobs, information technology is increasingly replacing white collar jobs and even some professional jobs. Computers now can analyze x-rays as well as trained radiologists, or conduct research in case law more efficiently than an attorney. As long as a task consists of a set of instructions that can be expressed in an algorithm, it can be performed by a computer.
A previous blogpost, “Technology and the Future of Work,” (June 2, 2014), raised the question of whether the trend identified by Keynes, of technology replacing more jobs in the U.S. than it was creating, was contributing to a decrease in the labor force participation rate. In mid-September 2014 the Brookings Institution released a study examining factors responsible for the declining participation rate.
The study found that reduced participation rates among the baby boom generation and teenagers and young adults were primary contributors to the overall decline. Among youths, the decline may be due to extending years of education or to competition from older workers for the middle- and low-skill jobs teenagers and young adults have traditionally held. The study cites the role that technological changes play by increasing demand for better-educated workers while displacing less-educated workers in middle-skill jobs, thereby reducing the participation rate of less-educated adults. Although improvements in labor market conditions may slow or reverse the trend in participation rate, the downward trend will dominate in the longer term. Indeed, a Harvard Business School survey of alumni released in September 2014, “An Economy Doing Half Its Job,” reported that 46% of respondents “strongly or somewhat agreed that their firms’ U.S. operations prefer to invest in technology to perform work rather than hire or retain employees.”
Two hundred years ago the typical workday in the U.S. was 14 hours. President Martin Van Buren issued an order in 1840 to limit laborers to a 10 hour workday for employees on federal public works projects. By 1919 the standard had become eight hour days and six day work weeks. During the Great Depression many employers shortened work weeks further, first laying off many workers, then protecting the workers that remained by sharing work among them. The momentum toward a 30-hour work was such that the U.S. Senate passed a bill in 1932 to make it policy, but the bill made it no further and the momentum dissipated. Passage of the Fair Labor Standards Act in 1938 established the five-day 40-hour work week still in effect.
If technology continues to replace more jobs than it creates, and if people still desire those goods and services that can be produced with fewer workers, how will people be able to afford those goods and services? A 2012 book by Robert and Edward Sidelsky titled How Much Is Enough? Money and the Good Life addressed achieving the good life. They wrote:
What would an economic organization geared to realizing the basic goods look like? It would have to produce enough goods and services to satisfy everyone’s basic needs and reasonable standards of comfort. It would furthermore have to do so with a big reduction in the amount of necessary work, so as to free up time for leisure, understood as self-directed activity.
A study by OECD, reported in a September 24, 2013 article in The Economist, found that the vast majority of people in developed countries worked fewer hours than they did in 1990. Furthermore, the data showed that the more productive the OECD countries’ workers were, the fewer hours per year they worked. Adam Smith had noted a similar relationship between hours worked and productivity in the 18th century. So increasing productivity while spreading hours worked among a larger workforce could theoretically reverse the decline in the labor force participation rate. One direction to consider is reducing the length of the work week to provide jobs to more people. The question that must be addressed is whether a worker can earn enough in a much shorter work week to afford the desired standard of living.
Coincidentally, published in September 2014 at the same time as the Harvard study, “State of Global Well-Being” was produced jointly by the Gallup polling organization and Healthways, a healthcare management company. This study developed a well-being index for each country surveyed based upon individuals’ perceptions of their own well-being as expressed by responses to ten questions. The five top-scoring countries in order were Panama, Costa Rica, Denmark, Austria, and Brazil. The United States ranked twelfth. The five top countries were ranked by the World Bank by 2013 GDP per capita as follows: Panama 51st, Costa Rica 55th, Denmark 6th, Austria 11th, and Brazil 50th. The U.S. ranked 9th. The lack of correlation between GDP and well-being provides food for thought.