The labor force is shrinking. Here’s what keeps Americans from working.

The job market remains surprisingly resilient as the US added more jobs than expected in November. But this job growth masks a trend that is putting pressure on employers and the economy alike: the labor force is actually shrinking.

The number of people either working or looking for a job fell by 186,000 in November, marking the third straight monthly decline, according to Labor Department data released on Friday.

The labor force participation rate, or the percentage of working-age adults who are in work, fell to 62.1% last month, down 0.3 percentage points from August. And that’s still a far cry from the pre-pandemic rate of 63.4%, which signals the labor market is far from fully recovering.

The dichotomy of job growth coupled with a shrinking labor pool underscores the tensions the US economy is facing at a precarious moment. The Federal Reserve is looking to slow the economy and cool the job market – but employers are pulling out all the stops to find workers as many are on hiatus due to a combination of illness and childcare issues for parents. Additionally, millions of baby boomers retire each year.

The decline in the labor force participation rate is “a cause for concern,” said Sania Khan, chief economist at Eightfold AI, a recruiting software provider. The decline is “one of the main reasons for this persistently tight labor market”.

As a result, employers are raising wages to attract workers and have increased November average wages by 5.1% over the past 12 months — or double what economists had been expecting, according to Julia Pollak, chief economist at ZipRecruiter.

The shrinking workforce represents a setback in the fight against inflation: if employers had more workers to choose from, they would be under less pressure to raise wages and thereby contribute to inflationary pressures. With wages rising faster than expected in November, it’s more likely the Fed could keep rates high longer than expected, Pollak added.

Sick

Although the pandemic is easing and COVID cases are declining, more Americans are unable to work due to illness than a year earlier, Pollak pointed out.

“Sickness still holds people back,” she wrote in an email. “In November, 1.6 million people were employed but unemployed due to their own illness, 261,000 more than in the previous month and 83,000 more than at the same time last year.”

Though COVID cases are declining, Americans are being hit by what has been called the “triple disease,” or a triple whammy of cases of COVID-19, the flu, and a virus called respiratory syncytial virus (RSV) emerging at the same time.

In October, 104,000 workers failed to show up because of childcare problems, according to the government. Some of these workers may have been forced to skip work to look after sick children.

Another concern for the workforce is the wave of baby boomer retirements. Boomers accelerated their retirements in 2020, the year the pandemic hit, with retirements up 13% that year, according to Pew Research. Almost 29 million baby boomers retired in fall 2020, or about 4 in 10 people of this generation.

At the same time, parents continue to struggle with childcare issues ranging from childcare availability to cost. Since the pandemic began, nearly 90,000 childcare workers have left the industry, about 8% of the workforce, according to the Center for American Progress.

With reporting from the Associated Press.

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