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Why America’s labor force decline matters beyond current supply shortages, rising prices

In this photo illustration, a person files an application for unemployment benefits on April 16, 2020, in Arlington, Virginia.
In this photo illustration, a person files an application for unemployment benefits on April 16, 2020, in Arlington, Virginia. | AFP via Getty Images/OLIVIER DOULIERY

Work is fundamental to human flourishing. Work determines individuals’ incomes and total economic output, and it’s also a core component of meaning and contentment in people’s lives.

strong work ethic was fundamental to America’s founding, and it enabled America to become one of the most prosperous nations in the world. That’s why the recent decline in labor force participation in the United States is so troubling.

Having declined steadily over the past two decades from a peak of 67.3% in early 2000, the U.S. labor force participation rate plummeted, and has yet to fully recover, since the start of the COVID-19 pandemic.

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Between February 2020 (prior to the pandemic) and February 2022, the labor force participation rate declined 2.1 percentage points, from 63.4% to 62.3%. That translates into 3 million fewer workers today.

Demographic shifts explain part of the longer-term decline over the past decades. The retirement of the baby boomer generation — which is expected to be fully retired by 2030 — is responsible for roughly half of the pre-pandemic labor force decline. And the pandemic appears to have caused some baby boomers to retire earlier than planned, as roughly 1.75 million baby boomers retired in 2021 versus the typical 1 million per year.

But the decline in labor force participation isn’t just older Americans hanging up their work hats a few years early.

The labor force participation rate for America’s core workforce of individuals ages 25 through 54 has declined 2.2 percentage points since 2000. That translates into 2.7 million fewer workers, and 1 million of that loss occurred just over the past two years, during the pandemic.

Labor force declines have been most significant — and troubling — among men. Between 2000 and 2022, the labor force participation rate of men ages 25 through 54 dropped 3.4 percentage points, resulting in 2.2 million fewer prime-age working men today.

Although there has been a slight recovery in labor force participation rates since the start of the pandemic, current economic policies and welfare-without-work government programs are holding back labor force participation.

But people working is what drives output and fuels innovation. It’s only through work that basic necessities such as food and housing are available and that innovations such as automobiles and smartphones that make our lives easier and more mobile are possible.

Work is also essential to support essential government services, such as national defense and a justice system.

A 2017 Heritage Foundation study reported that 71% of young Americans between the ages of 17 and 24 were ineligible to serve in the military because of health problems (obesity, substance abuse, and mental health, to name a few), a lack of education and criminal records.

As retired Army Lt. Gen. Thomas Spoehr, the report’s author, explains, “A manpower shortage in the United States military directly compromises national security.” (The Daily Signal is the news outlet of the Heritage Foundation.)

On top of that, the more lawmakers continue to expand the size and scope of government — and the national debt — the more that a declining labor force could become a vicious cycle.

For example, entitlement programs have grown so much that current workers pay for 100% of providing Social Security and Medicare benefits to current retirees, including even interest payments on past borrowing from those programs.

But the more the government raises taxes to increase benefits for nonworking Americans, the less people will work.

Most importantly, Arthur Brooks, a Harvard University professor and former president of the American Enterprise Institute, has explained, earned success that comes through work is the secret to human happiness and dignity.

Brooks points out: “To truly flourish, we need to know that the ways in which we occupy our waking hours are not based on the mere pursuit of pleasure or money or any other superficial goal. We need to know that our endeavors have a deeper purpose.”

This is why, regardless of pay, people who feel productive at their jobs are five times as likely to be satisfied in their jobs as those who don’t feel productive.

For the sake of personal and societal happiness, for the sake of financial well-being, for the sake of America’s dire fiscal situation, and for the sake of preserving the foundation of American society, it’s time for lawmakers to recognize the value and rewards of work in the policies they implement.

By protecting individuals’ rights to pursue the type of work that is best for them and not forcing workers into unions, policymakers can expand opportunities for people to achieve meaningful and rewarding work.

By eliminating double taxes on investments, policymakers can expand investments in education, experience and technology that increase the returns to work.

And by orienting welfare programs toward work instead of hooking people on dependency, lawmakers can help more people achieve their potential.

Work truly affects every aspect of American life. Our economy, our personal well-being, and even our national security depends on it.

Originally published at The Daily Signal. 

Rachel Greszler is research fellow in economics, budget, and entitlements in the Grover M. Hermann Center for the Federal Budget, of the Institute for Economic Freedom, at The Heritage Foundation. Read her research.

Matthew Lobel is a member of the Young Leaders Program at The Heritage Foundation.

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