How Betsey Stevenson’s Coffee Shop Can Boost the Labor Force – Real Time Economics

The White House’s Council of Economic Advisers published a report this morning arguing that most of the decline in the labor force participation rate can be attributed to the aging of the Baby Boomers. But, they estimate, there’s still a little over 1 million people who might be drawn back into the labor force if the economy improves.

At a press briefing this afternoon, Betsey Stevenson, one of the members of the CEA, offered up a stylized story about how people who have dropped out can be drawn back into the labor market when the economy gets hot and job turnover, in particular, picks up. The story does a nice job explaining how a robust labor market with lots of hiring could potentially pull more and more people back into the work force:

When there’s a lot of people changing jobs, that means employers are hiring all the time, there’s lots of openings being created. Because I’m quitting my job and going to the next job, that creates an opening that has to be filled.

With all these openings around you go to the coffee shop and you run into a friend and your friend says “Oh, hey, did you hear there’s an opening at the Wall Street Journal?” and there’s a lot of chatter about different openings because there’s a ton of openings. [A great example.]

Imagine you’re a woman who decided when her second kid was born, or third kid was born, that it was just too much to juggle. She needed to take some time off work and she hasn’t been working.

Now there’s a lot of jobs being created, and she’s at the coffee shop and she’s juggling her kids, and she’s thinking work might be easier. And somebody says, “Hey, did you hear there’s an opening at your old firm and they’re trying to get someone to do what you wanted to do? You should think about coming back.”

She thinks “Yeah, I really should.” So she might apply and she might get back in.

Now imagine the same story in a weaker economy with far less job turnover and far less flowing of workers into and out of different positions:

 Now imagine there’s a decline in flows. She’s just less likely to go into the coffee shop and get told that by someone. She’s managing OK with her kids and her family income is doing OK and nobody mentions to her that there’s an opening. So she continues to not be in the labor force.

That is the sort of story of how a person could go about, who looks like a normal person who should be in the labor market, who may be less likely to be pulled in when there are fewer flows.

When she keeps showing up at the coffee shop, and people keep telling her about lots of opportunities because the labor market is really hot, she makes a different set of choices than when the labor market is not hot.

This is a stylized story to think about the trends in play, not a literal forecast that millions of Americans will find jobs through serendipity at coffee shops. Ms. Stevenson’s point is that if the economy really picks up, people who might otherwise stay on the sidelines will come back in. And not simply people who were discouraged for economic reasons.

Her story also explains a big part of why economists worry so much about the decline of churn in the labor market, and why it’s worrisome that the slowdown may be driven by structural factors, and not just driven by the weak economy in the U.S. since 2007. If the U.S. labor market ever fully recovers with lots of jobs and turnover it could create abundant opportunities for disgruntled workers and those on the sidelines to once again find productive jobs.



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