EverythingPeople This Week!

Published on Tuesday, November 20, 2018

Better Family Policies Key to Fixing Labor Participation Rate

Author: Kevin Marrs

Is your organization struggling in this new era of full-employment?  According to a study from the Federal Reserve Bank of San Francisco the U.S. is now at full employment.  And while most would look at full employment as a good thing, it does bring with it some challenges.  Notably, a lack of qualified talent and meeting the demand to increase salaries in order to attract and retain talent, to name a few.computer screen with childcare costs


How do we know that we are at full employment, you might ask?  Well, one area that researchers look to is labor force participation rates.  The labor force participation rate is the share of people ages 16 and older who are either working or actively looking for work.   The Fed study suggests that a participation rate that is at or above its potential rate or so-called long-run trend is a signal that the labor market is at or above full employment.  In October, the Bureau of Labor Statistics reported a civilian labor force participation rate of 62.9%.  In the same period in 2008, the participation rate was 66%.  There is some expectation that the labor participation rate will decline in the future as the population ages.


So, now that there appears to be some concrete data to confirm what we may have intuitively felt, the attention inevitably shifts to potential causes and potential solutions.  The San Francisco Fed’s recently released a research paper focused on just that. 


In their research, which drew on comparisons to other countries to explain why labor participation rates have stagnated.  They noted that U.S. labor participation rates are falling behind other countries.  For example, in 2017, 87% of prime-age workers (people ages 25 to 54) in Canada participated in the labor market, compared with 81.7% in the United States, a 5.3 percentage point (pp) gap.


Mary Daly, the San Francisco Fed’s new president, highlighted one potential solution to draw people back to the workforce is to address the lack of parental leave and affordable childcare options.  If addressed, it is thought that as many as 5 million additional workers would join the labor force.


According to May and her colleagues, “Parental leave policies in Canada provide strong incentives to remain attached to the labor force following the arrival of a new child: a person’s job is protected with the same wages and benefits continuing to accrue during the leave, and a system of benefits funded out of employment insurance provides income replacement during the leave. Thus, a parent on leave maintains a continuous employment relationship, and this protection can last for up to 78 weeks in combination with existing maternal leave (with some variation across provinces).”


While May is not advocating that the U.S. replicate the Canadian approach, she notes that these comparisons provide good evidence that policy makers also need to be conscious of policies that encourage workforce participation.


Sources:  inc.com, forbes.com, frbsf.org


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