Employment Has Value Beyond a Paycheck

James Sherk

The employment-to-population ratio — the proportion of Americans working in jobs — fell sharply during the recent recession and has barely recovered. Many commentators dismiss this fact as a consequence of demographic change, and that explanation contains some truth. Younger Americans are staying in school longer, and the Baby Boom generation has begun to retire. Economists have long expected these changes to push down employment rates: Students and retirees are much less likely to work than are adults in their prime working years.

But demographic shifts can explain only part of the drop in the employment rate. The Bureau of Labor Statistics tracks the employment-to-population ratio for “prime age” workers (those who are 25 to 54 years old). Workers in this age group are largely finished with school and too young to retire. Demographic changes have little effect on prime-age employment rates.

The prime-age employment rate remains persistently below pre-recession levels. Between 2005 and 2007, it hovered between 79 percent and 80 percent. Then it dropped rapidly during the recession, falling almost 5 percentage points. Since then, the prime-age employment rate has only partially recovered. Between 2010 and 2015, it rose just 2 percentage points. If employment rates had fully recovered, millions more Americans in their prime working years would have jobs.

This fact does much to explain why Americans are so dissatisfied with the economy. The official unemployment rate has fully recovered from the recession, but the unemployment rate measures only those who are actively looking for work. Americans who drop out of the labor force and have stopped looking for jobs do not count as unemployed — even if they would prefer to have a job. The drop in the prime-age employment-to-population ratio shows that far more Americans have stopped working than mere demographics would predict.

For many American families, this poses a serious challenge. Obviously, reduced employment lowers household incomes. Since the recession hit, the real household incomes of working-age Americans have fallen even though real wages have risen modestly. The reduction in the number of Americans with jobs has overwhelmed the modest increase in pay for those who are still working.

Moreover, this problem becomes self-reinforcing. Employers value experience, and unemployed workers do not gain experience. Therefore, the longer they spend out of work, the harder it becomes for them to find new work. This lost experience can reduce incomes for years to come.

Less obviously, and beyond these economic costs, many Americans find meaning in their work. By working, Americans provide for their families and serve the broader society. The vast majority (86 percent) of Americans say they are satisfied with their jobs.[1] While most workers enjoy some time away from work, extended periods without work deprive them of this meaning. Workers who have spent prolonged periods unemployed are more likely to become depressed and to feel socially isolated.

Employment has value beyond the paycheck it provides, and a prolonged weak economy hurts workers and families more than just economically.

James Sherk is a Research Fellow in Labor Economics in the Center for Data Analysis, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.


Next Up in the General Opportunity Section:

Unemployment Rate


Endnotes

  1. Gallup “Work and Workplace” poll conducted August 5–9, 2015, with a random sample of 485 adults who were employed full-time or part-time. Results available online at http://www.gallup.com/poll/1720/work-work-place.aspx (accessed June 2, 2016).


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