How Has Job Polarization Contributed to the Increase in Non-Participation of Prime-Age Men?

Non-participation among prime-age men in the U.S. has doubled from 6 percent in 1976 to 12 percent in 2016. Over these four decades, there have also been rapid increases in the employment shares of low- and high-skill jobs, while the employment share of middle-skill jobs has declined in the U.S. labor market. This aggregate shift in the composition of jobs, known as "job polarization," may be contributing to the long-term trend of increasing non-participation among prime-age men. To investigate, we first analyze four decades of data from the Current Population Survey to characterize the relationship between job polarization and the decline in labor force participation among prime-age men. Then, we construct a labor-search model with heterogenous sectors and individuals, and occupational choice. In the model, job polarization leads to an increase in the demand for better-educated workers and a decline in the demand for less-educated workers who are employed in middle-skill jobs. Some middle-skill workers transition to high-skill occupations, while others move to low-skill service sector jobs. However, some of the displaced middle-skill workers permanently drop out of the labor force as they are not willing to accept low-wages at service sector jobs. Our aim is to quantify the contribution of job polarization to the long-term increase in non-participation among less-educated workers, which is a key element of the long-term decline in the labor force participation rate of prime-age men. In order to stabilize and potentially reverse the trend, labor market policies need to provide incentives and opportunities for workers in middle-skill jobs to obtain the necessary skills to become qualified for high-skill jobs.