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The Biggest Mystery

The biggest mystery is not whether the United States is in a recession. It is not how quickly inflation will abate. The biggest mystery is, however, closely related to those pressing issues: What is driving the decline in labor force participation?

Recall this basic fact: In February 2020, 63.4 percent of the civilian population participated in the labor force. Today it is 62.1 percent.

Labor Force Participation Rate

That 1.3 percentage point gap – 3.4 million workers – exacerbates the excess demand in the labor market that fuels cost-push inflation and will require the Federal Reserve to reduce demand even more to bring it under control.

Who are these workers? Why are the no longer engaged with the market economy? One can start rounding up the usual suspects. Is it some difference between prime-age workers and retirees?

Labor Force Participat Rate, 25–54 Years

Labor Force Participation Rate, 55 Years & Older

No. Both show diminished labor force participation.

How about men versus women?

Labor Force Participation Rate, Men

Labor Force Participation Rate, Women

Same basic story. Both are down.

Another possibility is that the especially hard-hit service sector created a difference between high-skilled workers and low-skilled workers.

Less Than a High School Diploma, Bachelor's Degree of Higher

Labor Force Participation Rate, Less Than a High School Diploma

Again, both groups’ labor force participation rate is down. (Although, intriguingly, the low-skilled rate briefly recovered pre-pandemic levels in early 2021.)

We could go on, but the same picture emerges nearly regardless of how one cuts the data. Engagement in work is down in the United States, with important ramifications for all of the major pressing national economic issues.

It is the biggest mystery.

Disclaimer

Fact of the Day

The bitcoin futures market had a total trading volume of about $1.5 trillion in January of this year.