It is no surprise that the United States has seen a rise in labour exit. Now a researcher and economist at the Federal Reserve Bank of Boston has found the reason behind it all. Pinghui Wu has now offered the first empirical evidence about how the labour force exit rates rise when workers’ relative earnings decline. She has also taken into account that a job not only provides economic security but also affirms a worker’s social status. This social status is linked to the worker’s relative position in the labour market.
The results have shown that the decline in relative earnings of prime-age men without a college degree over the last four decades is estimated to have raised their labour force exit propensity by 0.49 percentage point. This accounts for 44 percent of the total growth in their labour force exit rate during this period.
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The study also investigates whether prime-age men without a college degree are more inclined to leave the labour force when their expected earnings fall in comparison to the earnings of other workers in their market. The study mentioned that they have used “a difference-in-differences framework and for identification relies on the variation in non-college men’s relative earnings across states and occupations over time. The sample consists of state-occupation-level panel data on labour force exit rates, occupation earnings, and job loss risk matched with information on the state-level earnings distribution and a set of state socioeconomic controls over the period 1980 through 2019.”
The reason men leave the labour force when their relative status declines is because the marriage market sorting among younger workers is a possible link between the two. The other contributing factors include low job satisfaction, disability, and schooling. The study also mentioned a recent paper by Krause and Sawhill (2017) that suggests prime age men who were not working spent twice as much time on leisure activities and sleeping compared to their counterparts. This meant they had not left work to engage in other leisure activities. Instead, this reflected a dissatisfaction about work. Nearly 30 percent of the prime age men also reported a work-limiting disability condition at the time of their exit. Along with this the percentage of workers leaving their job, enrolled in school at the time of the exit has increased from 11 percent to 14 percent over the last two decades.
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