Many are concerned about the state of the American job market, convinced that improving employment indicators mask pervasive hardship. In particular, some are concerned about the increase in the number of prime-age men who are neither working nor looking for work—men who are out of the labor force, or inactive. While this upward trend is routinely taken as a sign of the economy’s weakness, other interpretations are possible.
Scott Winship considers why inactivity in the labor force among prime-age men—those between the ages of 25 and 54—has grown so steadily for so long. The study examines trends in a number of labor market indicators to assess the extent to which rising inactivity rates reflect a worsening of the job market (lower demand) or reduced job-seeking (lower supply). It takes a detailed look at four different types of prime-age inactive men: the disabled, the retired, those who want a job, and those who do not.
Policymakers should focus on helping the unemployed and inactive men who want jobs and on reforming disability programs to promote independence. The unemployment rate provides a reliable indicator of changes in the labor market’s strength, even if it understates the level of involuntary joblessness. The Bureau of Labor Statistics should consider adopting a new “U5b” rate that includes inactive people who want a job along with those counted by the existing unemployment rate, in order to institutionalize a broader measure of joblessness and increase faith in our jobless statistics.