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Why Did Labor Force Participation by Youth Drop?

Thursday, February 5, 2015

Young workers, those between 16 and 24 years old, have experienced one of the most substantial drops in the labor force participation (LFP) rate—with the rate declining from 68.8 percent in September 1979 to around 65 percent until 2000, then finally to 54.9 percent by September 2014. A recent article in The Regional Economist examined whether this drop in the LFP rate was a positive or a negative.

Economist Maria Canon and Senior Research Associate Yang Liu, both with the Federal Reserve Bank of St. Louis, and Economist Marianna Kudlyak, with the Federal Reserve Bank of Richmond, noted that the drop could be a net positive if it was due to young people attending school, implying a more-skilled prime-working-age labor force in the future. However, as the authors wrote, “If young potential workers are neither in the labor force nor in school, incorporating them into the labor force in the future might not be an easy task.”

Decline by Age and Education Group

To get a better picture of the decline, the authors divided this group further into age groups:

  • Those between 16 and 19 years old, who are largely transitioning between high school and college
  • Those between 20 and 24 years old, who are largely transitioning between college and graduate school or the labor market

The authors found that the younger group experienced a much larger decline in its LFP rate, as the rate fell from 52.8 percent in 1998 to 34.2 percent in 2014. The 20-24 group saw its LFP rate decline from 77.5 percent to 71 percent over the same period.

Differences were also apparent when splitting young workers into groups by educational attainment. For the 1998-2014 period, those between 16 and 24 with less than a high school diploma saw their LFP rate drop from 50.3 percent to 29.8 percent. Young people with at most a high school diploma or with some college experienced LFP falls of about 10 percentage points. However, young workers with at least a college degree did not experience significant changes in their LFP rate, which declined from 84.5 percent in 1998 to 82.4 percent in 2014.

In School?

To assess the effect of staying in school on the drop in LFP, the authors used data from the Bureau of Labor Statistics’ Current Population Survey to look primarily at two groups of people ages 16-24 who aren’t in the labor force:

  • Those who are in school
  • Those who are not in education, employment or training (NEET)

The authors wrote, “The decline in youth labor force participation corresponds to a higher fraction of them attending school.”

School attendance for those without a high school diploma rose from 38 percent in 1998 to 60 percent in 2014. This rise was driven by the younger population, as the percentage of those 16-19 attending school went up from 39.8 percent to 58.5 percent over the same period.

NEET was the second-most prevalent reason for not being in the labor force. The fraction of NEET did not change significantly over the period studied, but trends among education groups were still apparent. The NEET fraction increased significantly for the population with a high school diploma and for the population with some college education.

The authors concluded, “Since 1998, most of the decline in youth labor force participation corresponds to an increase in school attendance (in particular of the 16-19 population). The fraction of the NEET population did not change significantly over this period, but within education groups the trends have been different. A more-detailed study of these labor trends among youth is needed to understand the future incorporation of these people into the labor market.”

Additional Resources

Posted In Labor  |  Tagged maria canonyang liulabor force participation
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