Millions of workers will remain out of the U.S. labor market until the real and perceived benefits versus the costs of working are improved, said Richmond Fed President Tom Barkin, on Tuesday.
In a speech to the South Carolina Chamber of Commerce, Barkin estimated there are nearly 108 million Americans on the sidelines of the economy. Of those, only 8 million are actively seeking work. This translates to an unemployment rate of 4.8%.
Why aren’t more people working? The pandemic has exacerbated four key barriers to employment: mismatches, family care, health and incentives, he said.
Most Americans out of the labor force are women and those without a college degree. They live in small towns and rural areas, Barkin said.
For some, opting out of work is the right decision. “But it is easy to imagine many could be open to working,” he said.
Barkin noted that Japan has increased the employment-to-population ratio for adults ages 60 to 64 by almost 20 percentage points to 70.3%. The U.S. ratio is 56%.
Many U.S. benefit programs have unintended incentives that keep people from returning to work. And the tax code means that a family’s take-home pay may actually be higher without a second labor market participant, he said.
As a result, the Richmond Fed has invested in distributing a tool that helps organizations understand the dynamics of the benefits cliff in their geography.
“We can’t grow without more workers. The best source of more workers is those on the sidelines. And those on the sidelines won’t come back to the labor market unless the math makes better sense to them, whether it be child care, benefits, compensation, transportation, or investment in education,” Barkin said.
were higher on Tuesday on the back of good third-quarter earnings reports.