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

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Abstract

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.

Suggested Citation

  • Julie L. Hotchkiss, 2022. "Will Wage Growth Alone Get Workers Back Into the Labor Market? Not Likely," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(1), February.
    • Handle: RePEc:fip:a00068:96627
    DOI: 10.29338/ph2022-01
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    File URL: https://www.atlantafed.org/-/media/documents/research/publications/policy-hub/2022/02/24/01--will-wage-growth-alone-get--workers-back-into-labor-market--not-likely.pdf
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    More about this item

    Keywords

    labor force participation; baby boomer; Gen X; millennial; labor supply elasticity; the Big Quit; the Great Resignation;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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