Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men
Data indicate that more frequent labor force exit among men without a four-year college degree has been driving the decline in the US prime-age (25 to 54) men’s labor force participation rate over the last 40 years. At the same time, non-college men’s earnings measured as a share of the average earnings of all prime-age workers have fallen by more than 30 percent since 1980. In light of these parallel trends, this paper investigates whether prime-age noncollege men are more inclined to leave the labor force when their expected earnings fall relative to the earnings of other workers in their labor market. The empirical model takes into account that a job not only provides economic security but also affirms a worker’s social status, which is tied to their position relative to their age-range peers. The sample consists of state-occupation-level panel data on labor force exit rates, occupation earnings, and job loss risk matched with information on the state-level earnings distribution and a set of state socioeconomic controls over the period 1980 through 2019.