The Covid-19 pandemic and associated recession have had dramatically different effects across industries, with some, including large parts of the leisure and hospitality sector, truly devastated and others, like much of the manufacturing sector, able to recover quite quickly. This has led some analysts to describe the pandemic as a reallocation shock, requiring substantial movement of labor across industries. Such a process likely requires substantial time, during which the natural rate of unemployment may be elevated. In this Chicago Fed Letter, we consider two questions: First, has the need for labor reallocation risen, and second, has there been an increase in the amount of reallocation that is actually occurring?

Introduction and summary The labor force participation (LFP) rate--the share of the working-age population that is either employed or jobless and actively looking for employment--has fallen from 66 percent at the beginning of the Great Recession in December 2007 to 62.7 percent in September 2014. (1) To some, this decline suggests the possibility that there may be labor market slack over and above that captured by the unemployment rate. The existence of such extra slack might imply that it would be appropriate for monetary policy to remain highly accommodative for longer than would otherwise be the case. However, to properly judge the extent to which the drop in the LFP rate reflects additional slack, one must account for the effects of several long-running trends not associated with the latest recession. Such pre-recession trends include the movement of baby boomers into retirement ages, long-running declines in the labor force participation of males of prime working age (25-54), the flattening out of once-rising female participation, sharp declines in teen participation, and the increasing participation of adults aged 55 and older. All but the last trend imply that a decline in aggregate LFP was to be expected even before the Great Recession began. Indeed, after rising from the 1960s through the 1990s, LFP has been falling since 2000, reflecting most of these factors. In this article, we extend the methodologies of Aaronson and Sullivan (2001), Sullivan (2007), Aaronson, Davis, and Hu (2012), and Aaronson and Brave (2013) to provide estimates of the long-run trend rate of LFP (2) based on pre-recession data (data before 2008). Our models (with different specifications) suggest that the actual LFP rate as of the third quarter of 2014 is 0.2 to 1.2 percentage points lower than what would have been expected before the recession started, with our preferred model estimating the gap at the high end of this range. (3) We also provide a prediction of the LFP rate that would have been expected given the high unemployment rates of recent years and find that the actual LFP rate as of late is 0 to 0.8 percentage points lower than that benchmark, with our preferred estimate again being at the high end of the range. The results from our models suggest that there may indeed be greater slack in the labor market than is signaled by the unemployment rate. Our analysis is based on the full set of micro-level data on labor force participation collected in the U.S. Bureau of Labor Statistics' (BLS) Current Population Survey (CPS)--often referred to as the household survey--since 1982. These BLS data allow us to estimate statistical models that independently account for the long-running patterns we have mentioned. In particular, microdata allow our statistical models to identify life-cycle work patterns by very fine age groups and, further, to account for how specific cohorts follow these life-cycle patterns to varying degrees depending on when they were born. This is useful because cohorts that have high LFP early in their working careers tend to continue to have high LFP later in their careers as well. (4) There have been important changes over time in these birth-cohort-specific LFP tendencies. On the one hand, successive cohorts of men, especially those with low levels of education, have had lower and lower LFP tendencies. On the other hand, for several decades successive cohorts of women tended to work more than earlier cohorts. However, those born after roughly 1960 did not show much further increase in LFP and the latest cohorts of women may even be showing some declines relative to earlier cohorts--similar to the pattern that has prevailed among men for several decades. Thus, as the women born before 1960 have exited their prime working years, their upward influence on women's LFP has largely disappeared. Our models also allow LFP to vary by education level, reflecting the well-known positive association between educational attainment and LFP. …

The authors extend methodologies from their previous research to provide estimates of the long-run trend rate of labor force participation (LFP) based on data before the Great Recession (before 2008). Their models suggest that the actual LFP rate as of the third quarter of 2014 is 0.2 to 1.2 percentage points lower than what would have been expected before the recession started, with their preferred model estimating the gap at the high end of this range. Accounting for unemployment rates of recent years, their models for the trend LFP rate place the actual LFP rate between 0 and 0.8 percentage points below expectations, again with their preferred model estimating the gap at the high end. Their LFP results imply that the natural rate of unemployment may be lower than is often assumed (by as much as 0.6 percentage points since 2000) and that the long-run trend in payroll employment growth is expected to move substantially lower (to under 50,000 jobs per month) through 2020.

This paper presents new evidence regarding the benefits of retraining prime-aged adults by analyzing the impacts of community college schooling on displaced workers in Washington State during the 1990s. The authors also conducted a similar analysis of a small program that provided community college courses to workers displaced from their jobs during the mid-1980s in Alleghany County, (Pittsburgh) Pennsylvania. The samples were constructed by matching displaced workers' state unemployment insurance earnings records to their community college transcripts. The samples included only workers who had three or more years of job tenure when they were permanently displaced from their jobs. The Washington State sample consists of 21,000 workers displaced between 1990 and 1994 who enrolled in at least one community college course, and 64,000 displaced workers who did not take courses. The Pittsburgh sample consists of 3,200 displaced workers who took part in a county training program, and 3,500 displaced workers who did not enroll in the program. Both samples include dropouts in the samples of workers who enrolled in retraining programs. Findings of this study indicate that one year of community college training raised the hourly wage of both male and female workers by less than 2%. But earnings increased 5-6% because of increased hours worked due to training. (Contains 8 tables and 25 references.) (NB) Reproductions supplied by EDRS are the best that can be made from the original document.

The authors explore the entire construction sector, as well as the different classes of workers employed by it, to see how much it may be contributing to the recent slowdown in productivity growth.

Over the past 25 years policy makers have sought to reduce the long-term losses experienced by displaced workers by substantially expanding their opportunities for retraining. Much of this retraining has taken place in the nation's community colleges. In our analysis of community college-based retraining, we define a displaced worker as any worker with three or more years of tenure who filed a valid claim for Unemployment Insurance benefits following the loss of a job. Although this definition is narrower than definitions that sometimes have been used in programs that target such workers, this group should be of special interest to policy makers, because, unlike most unemployed workers, their job losses have long-term consequences for their earnings. To analyze the effect of community college schooling we rely on a large sample of administrative records from Washington State. Our analysis indicates that one year of community college schooling raises the earnings of male displaced workers by 7 percent and by even more for females. These estimates are consistent with those reported in the schooling literature. However, these impacts are significantly larger when displaced workers complete more quantitatively-oriented courses and significantly smaller when they complete less quantitatively-oriented courses. We also find that older displaced workers, those 35 and older, who enroll in community college-based retraining experience similar earnings gains as younger displaced workers. The net benefits from such retraining, however, are smaller for older displaced workers which is consistent with our finding that they participate in retraining at lower rates than their younger counterparts.

Summary. The clinical significance of elevated serum alpha‐fetoprotein (AFP) in patients with chronic hepatitis C virus (HCV) infection is not well defined. We analysed data from a population‐based cohort of patients with HCV infection to assess the prevalence of elevated serum AFP, to determine its association with clinical and virologic parameters and with clinical outcomes. We defined a slightly elevated serum AFP level as 8 to <15 and a high‐AFP level as ≥15 μg/L. Among 541 HCV‐RNA‐positive persons, 61 (11%) had a slightly elevated or high AFP at the time of consent. AFP ≥8 μg/L was associated with the older age, aspartate aminotransferase/alanine aminotransferase ratio >1, and higher alkaline phosphatase levels, but not with heavy alcohol use, IV drug use, genotype, viral load or duration of HCV infection. Among 192 persons with an AFP at liver biopsy, 17% had an AFP ≥8 μg/L. The sensitivity/specificity of an AFP level ≥8 in detecting Ishak 3–6 fibrosis was 39%/95%. Among 372 persons with a minimum of four AFP measurements over 6 years, 5% had persistently elevated AFP >8 μg/L, 19% had both elevated and normal AFP measurements, and 76% had persistently normal AFP. Elevated AFP at consent was associated with hepatocellular carcinoma (HCC) and end‐stage liver disease. Over 6 years of follow‐up, persistently elevated AFP was associated with the development of HCC; no person with AFP persistently <8 μg/mL developed HCC. Serial AFP measurements appear to be useful in identifying persons with advanced fibrosis and help to determine who needs periodic screening with liver ultrasound to detect HCC.

Fewer teenagers are participating in the labor force today than at any point since WWII. At just under 44%, teen labor force participation is 15 percentage points below its peak in the late 1970s. Why has there been a long-run secular decline in the work activity of young adults, and why has it sharply accelerated in the last five years? ESSAYS ON ISSUES THE FEDERAL RESERVE BANK JANUARY 2007 OF CHICAGO NUMBER 234

The authors examine the recent decline in teen work activity, offering explanations for both the long secular decline since the late 1970s and the recent acceleration in this decline since 2000. They argue that much of this pattern is due to a significant increase in the rewards to formal education. They also explore the importance of changes to labor demand, crowding out by substitutable workers, the increased work activity of mothers, and increases in wealth.

Introduction and summary By the middle of 2005, the U.S. civilian unemployment rate had fallen to 5 percent, a level many analysts consider consistent with essentially full employment. However, individuals who have become discouraged over their prospects of finding suitable employment and, as a result, have given up looking are not counted among the unemployed. Thus. analysts often look to the labor force participation (LFP) rate, the fraction of the population that is either employed or unemployed as an additional indicator of labor market conditions. In fact, the participation rate declined significantly during and after the 2001 recession and remains well below its 2000 level. This could imply more labor market slack than the unemployment rate suggests. The decline in LFP has been especially great for teenagers. As figure 1 shows, teens' participation rates had been trending down since the late 1970s. However, from 2000 to 2003, teen LFP fell a stunning 7.5 percentage points, compared with a decline in the overall rate of only 0.6 percentage points. Currently, the LFP for teenage boys is the lowest since at least 1948 and for teenage girls is the lowest since the early 1970s. Figure 1 also shows that the decline since 2000 in the LFP rate for those 20 and older is considerably less dramatic than the fall in the overall rate, which includes those aged 16 to 19. Although those between the ages of 16 and 19 represent only 4.2 percent of employment (and 8.2 percent of population aged 16 to 69), they account for over half of the fall in aggregate LFP since 2000. Strikingly, 16 year olds to 17 year olds, who account for only 1.6 percent of workers and 4.3 percent of the population aged 16 to 69, explain over one-third of the fall in aggregate participation since 2000. Thus, a better understanding of the forces shaping the labor force participation of teens may shed significant light on recent trends in overall participation. Another reason to look more closely at teen labor force participation is to understand what this major shift in the allocation of young people's time may mean for future productivity. The answer to this question likely depends on what teens are doing instead of working and whether those activities contribute to human capital development. On the one hand, if the reduction in time spent working in the market has been accompanied by a concomitant increase in the time spent in school or doing homework, one might reasonably expect an eventual increase in productivity consistent with the well-documented returns to education. (1) The impact of the increase in schooling investments on the overall economy might also include the positive externalities associated with education, including spillover productivity effects on peers and other workers, lower crime, and greater civil involvement in the public policy process. (2) On the other hand, a shift in teens' time allocation from market work to leisure or other activities that do not increase their human capital may negatively affect their future productivity. In general, labor market experience tends to raise subsequent earnings. Moreover, it is easy to imagine that moderate amounts of time devoted to a part-time job during the summer or while in school might inculcate good work habits and allow young people to make more informed educational and career choices. (3) [FIGURE 1 OMITTED] In this article, we examine the facts about teen labor force participation in more detail. We show that, although there is some variation in the magnitude, the decline in teens' labor force participation is extremely widespread. Virtually all groups of teens have seen a decline in LFP. We then discuss a number of possible explanations for this decline in teen labor force participation over the past quarter century as well as the sharper drop of the early 2000s. The possible explanations that we consider can be grouped into two categories: demand and supply. …

Introduction Studies have found that for many workers, job loss has a major long-term adverse impact on earnings. For example, in earlier research we found the earnings losses for high-seniority workers displaced from jobs in Pennsylvania during the early 1980s amounted to approximately 25 percent of their expected earnings even five years after job loss. The losses were larger for workers displaced in the Pittsburgh area and in other labor markets with substantial employment declines, for workers with many years of service with their former employer, and for workers whose former industries were declining (Jacobson, LaLonde, and Sullivan [JLS], 1993a, b). For such hard-hit workers, passive labor market policies such as unemployment insurance (UI) offset about half of their earnings losses during the typical six-month period when workers are eligible to collect benefits. However, because experienced displaced workers often face especially difficult readjustments, they are more likely than others to exhaust their unemployment insurance benefits. Moreover, a period of unemployment is not the only, or even the major, cause of financial loss suffered by displaced workers. Rather, the majority of their losses are attributable to their subsequent reemployment in lower paying jobs. The standard unemployment insurance program obviously does not address such losses. Policymakers also provide retraining and other benefits through active labor market policies, such as the Workforce Investment Act (WIA) and its predecessor, Title III of the Job Training Partnership Act (JTPA), as well as the Economically Displaced Worker Adjustment Act (EDWAA). However, as we discuss, the modest resources available through such programs cannot fund large enough investments in displaced workers' skills to offset a significant portion of their long-term earnings losses. In this paper, we examine the literature on the consequences of worker dislocation and the potential of retraining policy to ameliorate these effects. We observe that displaced workers differ from other job losers, in that temporary earnings losses associated with unemployment constitute only a small portion of the income losses associated with their layoffs. Second, retraining can be a productive investment both for displaced workers and for society. Third, incentives to acquire retraining differ in predictable ways among displaced workers. These differences influence who participates in retraining and how we interpret estimates of the impact of retraining among groups of displaced workers. Finally, current public investments in retraining are far too small to substantially mitigate the earnings losses of displaced workers. Because the long-term effects of displacement on earnings are large, policymakers would need to make comparably large investments in workers' skills to fully offset displaced workers' losses. In the remainder of this article, we first discuss the key characteristics that set displaced workers, apart from other unemployed workers. Next, we survey the literature on the short- and long-term consequences of job loss. Then, we consider the predictions of human capital theory for the effects of programs and policies to retrain displaced workers. We survey the relatively limited existing empirical literature on retraining displaced workers and briefly recount the history of public-sector retraining programs. Then, we explore the costs and benefits of retraining displaced workers from the perspective of both the worker and society. Finally, we summarize our conclusions and discuss some of the policy implications of research on retraining displaced workers. Who is a displaced worker and why should job loss be so costly? Although there is some variation across studies, there are three common elements in most descriptions of displaced workers: 1) They have not been discharged for cause; 2) they have permanently separated from their former employer or have only a very small likelihood of being recalled to their old jobs; and 3) they have had strong prior attachment to the industry of their pre-displacement employer. …

The authors estimate the returns to retraining for older displaced workers-those 35 or older-by estimating the impact of community college schooling on earnings. The analysis relies on longitudinal administrative records covering workers displaced from jobs in Washington State during the early 1990s. The authors find that older displaced workers participated in community college schooling at lower rates than younger workers. Among those who participated, however, the impact on quarterly earnings was similar across the two age groups. One academic year of community college schooling is estimated to have increased long-term earnings by about 7 % for older men and by about 10 % for older women. Although these percentages are consistent with those reported in the schooling literature, estimates of the social internal rates of return from this retraining may differ substantially among older and younger workers because of differences in their work lives and their opportunity costs of retraining.

Studies show that high-tenure displaced workers typically incur substantial long-term earnings losses. As these losses have become increasingly apparent, policy makers have significantly expanded resources for retraining, much of which takes place in regular community college classes. To analyze the effectiveness of such training, we link administrative earnings records with the community college transcript records of workers displaced from jobs during the first half of the 1990s in Washington State. We explore several issues of statistical specification for regression models quantifying the impact of community college credits on earnings. These include (i) the need to allow for a transition period immediately after the end of workers' schooling when their earnings may be temporarily depressed, (ii) whether earnings gains are strictly proportional to credits earned, and (iii) how to model worker-specific unobserved heterogeneity. In our preferred specification, we find that the equivalent of an academic year of community college schooling raises the long-term earnings of displaced workers by an average of about 9 percent for men and about 13 percent for women. However, these average returns mask substantial variation in the returns associated with different types of courses. On the one hand, we estimate that an academic year of more technically oriented vocational and academic math and science courses raise earnings by about 14 percent for men and 29 percent for women. On the other hand, we estimate that less technically oriented courses yield very low and possibly zero returns. About one third of the increase in earnings associated with more technically oriented vocational and academic math and science courses is estimated to be due to increases in wage rates, with the remainder attributable to increased hours of work.