Washington, DC, September 29, 2015 --  

More Americans are dropping out of the workforce. Technology and politics will decide if this continues.

As America's unemployment statistics show slow but steady improvement in the years following the financial crisis, things appear to be looking up for the nation's workforce. Last month, the country's unemployment rate dipped to 5.1 percent¹.   At the low end of the economic spectrum, where unskilled industrial workers have seen large job losses over the last few decades, several big cities and states have pushed forward large boosts in the minimum wage, to $15.

But statistics and political events can be misleading.  While unemployment has dropped, workforce participation rates have dropped as well.  As of July, the labor force participation rate hit its lowest level since 1977.²  Some of this has to do with our aging society -- all the Baby Boomers who are hitting retirement.  But it also accounts for large numbers of Americans have decided that it simply is not worth it to take the kinds of jobs they can get.

Comparisons with 1977 can be misleading.  Back then, women were still in the process of joining the workforce.  Today's female participation rate is higher than in 1977.  But the male participation rate is about 8 percent lower.  These are the folks who have retired, given up on finding work, or retired early for lack of options.  If you count only men, the labor force participation rate is smaller than it has ever been since before the Second World War.

By far the biggest hit on male employment since 1977 has been in manufacturing.  Employment levels have dropped from 18 million then to 12 million today despite a much larger workforce now.³ This has led many analysts to bemoan the plight of the working-class male, a demographic that has struggled to find a place in a labor market that is increasingly dominated by highly educated knowledge jobs, health care positions that are dominated by women, and low-paid service positions.

In recent years, on-demand contracting has take up some of this slack. Uber and Lyft have created part-time contracting jobs for tens of thousands of predominantly male drivers.⁴ Now Amazon has jumped into the ring with its new Amazon Flex service, which recruits individual contractors to pick up and drop off packages for same-day delivery.⁵ This service is currently being tested in Seattle.

Meanwhile, labor activists are setting their sights on the likes of Uber and other companies that rely on contractors. A class action lawsuit in California seeks to force the company to classify drivers as employees, which would require them to provide minimum pay and benefits.⁶ If successful, this and similar legal actions could have good results for some drivers, but risks destroying a new way that workers can get income. What would Uber do if the class action lawsuit were successful? Would it comply, or simply pull out of California?

Activists have taken a similar approach to low-wage jobs in fast food and other industries. In jurisdictions like Seattle and New York, lawmakers have pushed through a $15 per hour minimum wage (in New York it applies only to fast good chains.)⁷ In theory, this provides a fair living wage to those who work in these positions -- at least for those lucky enough to have such jobs in the areas where these minimums are in effect.

But even if many government entities require employers to pay their employees $15 per hour, there just aren't enough of these jobs to soak up all the people who are dropping out of the workforce. And evidence shows that steep rises in minimum wages (unlike gradual modest rises) actually do lead to job cutbacks.⁸ Fast food restaurants will pursue automation (like self-ordering apps and kiosks)  cut back on staffing to save money.   The end result will be a smaller number of $15 per hour jobs vs. a larger number at a lower wage.  That's bad news for unskilled men who want to join the workforce.

And that's not the end of the bad news. It's well known that in the past few decades, outsourcing and automation have decimated America's manufacturing labor market.  The next sector to take a hit is probably transportation, a sector that has grown strongly from 2.7 million in 1977 to 4.8 million today.⁹   The new labor positions offered by the likes of Amazon Flex and Uber are under severe threat of automation. Several companies are already experimenting with self-driving vehicles and delivery drones. It is a good bet that many of these jobs will be lost over the next few decades.  All those male Uber drivers who are making a few extra bucks?  It's probably a temporary phenomenon.

What is not known is whether the on-demand contracting phenomenon that started with drivers working for Uber and other companies will expand to other forms of labor that are less vulnerable to being lost to technology. Will other types of contracting jobs take up the slack? If so, it could provide the best hope for keeping more Americans in the workforce.

Related Web Columns:

Please Paint My Ceiling, August 21, 2012

Dead Wood
The Unemployable Working Class, November 3, 2009

Sustaining the Unsustainable, June 2, 2009

Worse than Worthless
The Coming Dependent Majority, October 25, 2008

Notes:

1. National Public Radio, Unemployment Rate Dips To 5.1 Percent Amid 173,000 New Jobs In August, September 4, 2015

2. Bloomberg, This Is Why Participation in the U.S. Workforce Has Plunged to Its Lowest Since 1977, July 2, 2015

3. Buerau of Labor Statistics, Employment, Hours, and Earnings from the Current Employment Statistics survey (National), As Retrieved September 28, 2015

4. Washington Post, Now We Know How Many Drivers Uber Has -- And Have a Better Idea of What They're Making, January 22, 2015

5. Wall Street Journal, Amazon Taps ‘On-Demand' Workers for One-Hour Deliveries, September 29, 2015

6. Tech Crunch, Uber Files Opposition To Case That Could Make All Drivers Employees Instead Of Independent Contractors, July 9, 2015

7. Fox News, New York State Approves $15 Minimum Wage for Fast-Food Workers, September 11, 2015

8. American Enterprise Institute, Minimum wage effect? January to June job losses for Seattle area restaurants (-1,300) largest since Great Recession, August 9, 2015

9. Bureau of Labor Statistics, Ibid.