Will Wage Growth Alone Get Workers Back Into the Labor Market? Not Likely.

February 23, 2022

Headshot of Julie Hotchkiss
Julie L. Hotchkiss Research Economist and Senior Adviser

Summary

This article finds that compared to baby boomers of the same age, millennials' labor force participation decisions are only about three-quarters as responsive to wage changes, and Generation X's participation decisions are only about half as responsive. These differences are not good news for employers trying to coax workers back into the labor market during a robust pandemic recovery. Using the most recent estimates, from 2019 data, the latest 6 percent year-over-year increase in average hourly pay reported by the US Bureau of Labor Statistics (BLS) is expected to only close 16 percent of the gap between current and prepandemic participation rates of prime-age workers. The implication is that employers will likely have to also resort to nonwage incentives to entice workers to fill their open jobs.

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Policy Hub 2022-1

Key finding:

  1. Wage growth alone is not likely to return labor force participation to prepandemic levels.
  2. Workers are redefining their relationship with the labor market.
  3. Labor force participation among Gen Xers and millennials is less responsive to wage changes than it was for baby boomers of the same age.

Center Affiliation:Center for Human Capital Studies

JEL classification: J22, J33, C25

Key words: labor force participation, baby boomer, Gen X, millennial, labor supply elasticity, the Big Quit, the Great Resignation

Digital Object Identifier: https://doi.org/10.29338/ph2022-01

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