Labor Force Participation among Women from 25 to 44
Dean Baker writes:
One popular explanation for the weak employment growth of the last five years is that mothers are increasingly opting out of the labor force. The argument is that in a post-9-11 world, people have come to recognize that family is what really matters. Therefore, women now want to be at home with their kids rather than pursuing a career. The evidence to support this view usually amounts to accounts of the experiences of a few friends or neighbors.
Despite all the happy talk from the White House about economic growth and increasing employment, the employment-to-population ratio remains at only 62.8%. While it had risen from 62.1% as of September 2003 to 62.8% as of July 2005, it has yet to reach 63%. Some of us are hoping that it will reach the 64% level, which appeared to be the natural rate of the employment-to-population ratio during the late 1990’s. On the other hand, some economists have argued that part of the reason the labor force participation rate declined from 67% to 66% was voluntary opting out of the labor force.
Our graph shows the labor force participation rates of women ages 25 to 34 (in blue) and of women ages 35 to 44 (purple) from January 1991 to November 2005. For the first ten years of this fifteen year span, we see a secular trend where labor force participation rates had been increasing but a general decline since then. Dean kindly points us to the work of Heather Boushey who shows that this these that mothers are opting out of the labor force is not supported by the evidence:
The recession of the early 2000s led to sustained job losses for all women–those with and without children at home–and by early 2005 the labor market had only just returned to its 2000 employment level, almost exactly four years after the recession began. During this recession, women experienced their largest employment losses in decades and once this is controlled for, the presence of children at home plays a smaller role in women’s labor force participation than it did in previous years, going back to 1984 … The paper will refer to this effect, which is the percentage point change in the probability of being in the labor force due specifically to having a child in each year, as the “child penalty” … Here, we see that the child penalty decreases from 1984 to 2000, from 18.2 percentage points down to 11.5 percentage points. Between 2000 and 2004, however, the child penalty rises back up to 13.5 percent. Column 3 shows that there is no such decline once the model includes a year effect, to control for the business cycle, as well as cultural and other changes affecting all women (not just mothers) that may have occurred over time. The year effects shown in Column 3 are the effects of the business cycle of women’s LFPR: in 2004, compared to 1984, women were 7.4 percentage points less likely to work because of the weak labor market. This dampening effect on women’s LFPRs is nearly as large as the 8.2 percentage point child penalty in 2004.
Simply put – while one can always find examples of women who have recently given birth to children opting out, Heather Boushey suggests that a careful read of the evidence would indicate that this opt out effect has been declining. Given that the ability to stay home with the kids and still provide for them depends on the ability of the other parent to earn income and given that real wages for many workers have declined, her findings are not that surprising. If mothers opting out do not explain the decline in the labor force participation rate among women between 25 and 44, might the explanation be continuing weakness in the overall state of aggregate demand relative to potential output?