WASHINGTON—According to new numbers released Friday, the labor force participation rate edged down to 62.2% in June, representing a decline of 3.2 million workers in the labor force compared to pre-pandemic rates.
The recent drop in work and labor force participation—particularly among young workers, whose employment is now 3.2% below its pre-pandemic rate, even as college enrollment has plummeted—is troubling. The current labor shortage is affecting the entire American economy, including business struggles, shortages of goods and services, disrupted supply chains, high and rising inflation, and rising deficits.
Continued low levels of employment will reduce the rate of economic growth, reduce real incomes and output, result in greater dependence on government social programs, require higher levels of taxation, and exacerbate America’s already precarious fiscal situation.
Rachel Greszler, Heritage Foundation research fellow in economics, budget, and entitlements, released the following statement Friday:
“There are 755,000 fewer Americans employed today than prior to the pandemic, even as the population age 16 and over has increased by 4.2 million. This has caused massive struggles for employers and is directly contributing to inflation, as employers have to pay workers more to do the exact same work they were doing before. Yet, even as average earnings are up $3,100 over the past year, the average worker is $1,800 poorer after factoring in a $5,100 inflation tax.
“Easing the labor shortage and alleviating inflation requires creating an environment in which more Americans want to pursue work and are able to maximize their productive capabilities. Reducing education and skills gaps requires expanding effective and low-cost or no-cost education options by reducing federal interventions in the higher education market and expanding apprenticeship options instead of closing off thriving new apprenticeships, as the Biden administration has done.
“When it comes to maximizing employment, the unintended consequences of many COVID-19 policies and federal interventions in the workforce demonstrate that while the temptation for policymakers is always to do more, the best way to increase employment is to abandon attempts to expand the government’s influence over people’s lives and instead expand individuals’ education and income opportunities by removing government-imposed barriers to work and affordable education.”
BACKGROUND: The demographics of current labor market gaps should be very telling for policymakers. The fact that employment gaps are concentrated in young workers and those over age 65 indicates that more education and flexible income opportunities are the solutions. And the fact that parents’ employment has fully recovered indicates that a costly new federal childcare entitlement—particularly one that would drive up costs, limit supply, and disproportionately benefit high-income and already working families—would do little to increase employment and would add to inflation and federal budget woes.