Investing in Workers Can Further Ease Inflation and Boost Economic Growth

The U.S. labor market has largely recovered from the recession that resulted from the COVID-19 pandemic, with the U.S. unemployment rate nearing historic lows and labor force participation for those aged 25 to 54 nearing 20-year highs.¹ Meanwhile, inflation in the United States has been cooling in 2023 and is now lower than inflation in every other G7 economy.² This economic progress is partly the result of an economic agenda that invests in the middle class.³ But to build on this growth, additional supply-side investments are needed—specifically increasing domestic labor supply so that everyone who wants to work has access to a good job.⁴

Policymakers at the federal, state, and local levels must strive to get more Americans into the labor market by making it easier for people to both enter the workforce and stay in good jobs. This report offers recommendations that target groups who would likely seek more good jobs under the right circumstances: 1) those without four-year college degrees, 2) those with caregiving responsibilities, 3) disabled people, 4) people with a criminal record, 5) older workers, and 6) Black and Latino workers.⁵ Notably, individuals often belong to more than one of these groups. For example, Black and Latino people are overrepresented among those with criminal records. Moreover, women tend to account for a large share of those with caregiving responsibilities.⁶ These Americans often struggle to participate in the labor market because they face obstacles such as a lack of access to child care or home health care and outright discrimination.⁷

Expanding the pool of available workers would not only help ease inflationary pressures over the medium term but also build the economic security of Americans. The United States needs to invest in its workers—a proven method to grow the economy by growing the middle class.⁸

A growing labor supply has several economic benefits. First, it can help bring down inflation over the medium term without causing an economic downturn.⁹ Greater employment opportunities at a time when employers need more workers would help ease supply-side bottlenecks caused by workforce shortages.¹⁰ Furthermore, growing the labor supply today is critical for addressing the potential future challenges that result from demographic changes, particularly an aging population.¹¹ According to the Federal Reserve Bank of Atlanta, the number of U.S. people between the ages of 25 and 54 has remained flat since 2019, while the number of Americans older than 65 has increased by nearly 5 million.¹² By increasing labor supply, policymakers can help reduce inflationary pressures over the longer term.

Second, growing the labor supply can expand the economy’s productive capacity. Faster productivity growth means that workers achieve more in the same amount of time as they did in the past. This not only reduces inflationary pressures but also makes it easier to address looming challenges such as climate change, aging infrastructure, and the health care needs of an aging population.¹³ Research has shown that more diverse perspectives make it easier to address complex problems in business and the economy.¹⁴ Therefore, a diverse pool of employed people can generate faster productivity growth. For example, one study found that among 700 people working in groups of up to five, those groups with more women were better able to solve tasks, signaling the importance of gender diversity in the workforce.¹⁵

After the pandemic-induced recession in early 2020, labor force participation and employment quickly recovered.¹⁶ In fact, all jobs lost during the recession had been regained by June 2022, and since then, job gains have averaged about 300,000 per month.¹⁷ Remarkable employment growth has been driven by more people coming into the labor market and finding employment.¹⁸ This progress is in part the result of decisive action and legislation—such as the American Rescue Plan Act, led by the Biden administration—that has helped lay the foundation for a tighter labor market to emerge, empowering workers.¹⁹

The continued expansion of the labor market shows that there are millions of people who want to work and will work under the right circumstances.²⁰ Yet many are unable to do so: U.S. Bureau of Labor Statistics data show that as of July 2023, more than 5.58 million people want a job but are not in the labor force for a variety of reasons.²¹ For example, there are 1 million people who are working part time because they have been unable to find full-time work.²² Among the 1.5 million people who are not currently in the labor force but are available to work, discouragement over job prospects and family responsibilities rank high as reasons for not working.²³ (see Figure 1)

Those who wish to work but are unable to do so face a number of obstacles. For example, women are more likely than men to be caregivers and therefore face additional demands on their time in order to meet their responsibilities to their children, parents, grandparents, or other relatives.²⁴ While the highest share of women on record are currently working—75.3 percent of those aged 25 to 54—that group is still eclipsed by 86.6 percent of men.²⁵ Additionally, people with disabilities face numerous hurdles, including struggling to find employers with adequate accommodations.²⁶ Women, people with disabilities, older workers, and Black and Latino workers may also face outright and structural discrimination, adding costs to their job searches, such as the length of time it takes to find a job.²⁷ For example, in July 2023, the average length of unemployment for unemployed Black workers was 28 weeks, compared with just 18 weeks for white workers.²⁸ Removing these obstacles would raise the number of people willing and able to work.

The sustained high level of job openings indicates that labor demand remains high among employers in many industries, such as accommodation and food services, health care, and state and local governments.²⁹ (see Figure 2) The challenge facing employers is how to attract more employees. Employers often have a hard time hiring workers due to low job quality or desirability as well as structural obstacles to work, rather than people not wanting to work.³⁰ In fact, the employment-to-population ratio—the share of people with a job—continues to gradually increase.³¹ In July 2023, the employment rate stood at 60.4 percent, just slightly below its February 2020 pre-pandemic level of 61.1 percent.³² Moreover, the employment rate of workers aged 25 to 54 was 80.9 percent in July—a 20-year high that exceeded pre-pandemic levels.³³

Over the past few years, the tight labor market has spurred many employers to take steps to attract employees, including by raising their wage floors and improving health benefits and professional development opportunities.³⁴

Policymakers at the federal and state level have an opportunity to alleviate worker shortages by implementing a suite of policies to reduce barriers to workforce participation and address retention challenges.

The most straightforward way to attract more workers into the labor market is to offer good jobs.³⁵ Rather than push jobless people, who often already face financial struggles, into any job, policymakers should aspire to create an environment in which these individuals can pursue good jobs—those that pay well and offer meaningful benefits, such as affordable health insurance, retirement plans, flexible work arrangements, and paid time for medical care and other needs.³⁶ Good jobs also provide people with control over their assigned tasks and reasonable career opportunities.³⁷

In particular, federal policymakers can boost job quality and expand opportunities to workers who have historically been unable to access good jobs by passing the Raise the Wage Act to raise the minimum wage, the Family and Medical Insurance Leave (FAMILY) Act to provide access to paid family and medical leave, and the Protecting the Right to Organize (PRO) Act to make it easier for workers to join a union.³⁸

Certain groups of workers—namely, those without four-year college degrees, those with caregiving responsibilities, disabled people, people with a criminal record, older workers, and Black and Latino workers—face specific barriers that warrant additional and particular focus from policymakers.³⁹

Workers without four-year college degrees

Workers without bachelor’s degrees—particularly women and disabled people—are lagging behind those with bachelor’s degrees both in terms of their recovery from the pandemic-induced recession and their overall employment rates.⁴⁰ (see Figure 3) Notably, these workers have always had lower employment rates than those with college degrees. For example, in July 2023, workers without a high school diploma faced an unemployment rate of 5.2 percent, compared with 2 percent for those with a bachelor’s degree.⁴¹ These workers tend to be overrepresented in low-quality work, including low-wage jobs without access to benefits or scheduling flexibility.⁴²

The following policy interventions can help bring more workers without a four-year college degree into the labor market:

• Implement skills-based hiring practices where appropriate, particularly in the state and local government workforce, to increase and diversify the employer recruitment pool beyond just those with four-year college degrees.⁴³
• Ensure that jobs created by the Biden administration’s economic investments in industries such as construction and manufacturing are available to a wider pool of workers by expanding access to worker training and apprenticeships, addressing discrimination harassment, providing workplace accommodations, and meeting child care needs.⁴⁴

Workers with caregiving responsibilities

People with caregiving responsibilities have lower rates of participation in the labor market than those without such responsibilities.⁴⁵ This can include caring for young children, oneself, a loved one with an illness or disability, or older people.⁴⁶ Notably, workers in the United States are often forced to make a choice between caring for themselves or others and finding work.⁴⁷ These caregiving responsibilities are likely to arise at some point in any worker’s life, and for many Americans, this forces them to reduce their paid work hours, forgo advancements in their career, or drop out of the labor market altogether.⁴⁸

Importantly, women are more likely to be caregivers: In 2022, 26.1 percent of women were engaged in “caring for and helping household members,” compared with just 16.9 percent of men.⁴⁹

As the U.S. population ages, these challenges will undoubtedly grow.⁵⁰ But this outcome is not inevitable; investments in affordable, high-quality child care and adult care can enable caregivers to enter and stay in the labor market. For example, a 2023 survey found that 59 percent of parents who were working part time or not working would return to full-time work if they could access affordable and quality child care.⁵¹

The following policy interventions can help bring more workers with caregiving responsibilities into the labor market:

• Guarantee paid, job-protected family and medical leave and paid sick leave so that workers remain paid and attached to the labor market when they need to take time off to care for themselves or others.⁵³
• Make public investments in child care, such as those proposed in the Child Care for Working Families Act, to expand the options available to families, reduce costs, increase the number of children who are served, and provide caregivers living wages and benefits.⁵⁴
• Invest more federal dollars into home- and community-based services (HCBS), providing caregivers the support they need to be able to return to work.⁵⁵

Workers with disabilities

The employment rate for people with disabilities has recovered from its pandemic-era low of 16.1 percent and hit a record high of 22.9 percent in July 2023.⁵⁶ Nevertheless, these rates have always been persistently low compared with employment rates for people without disabilities. (see Figure 6) Indeed, while the employment rate for disabled people hit a record high in 2023, it remains significantly lower than the employment rate for those without a disability—66.2 percent.⁵⁷

Disabled people often face discrimination as a result of their disabilities as well as a lack of accommodations from employers.⁵⁸ Policy designs, such as asset tests, have also put many people with disabilities in the untenable position of having to choose between finding meaningful work and maintaining crucial benefits, such as health insurance, because saving more than a specified amount precludes them from accessing necessary supports.⁵⁹

The following policy interventions can help bring more workers with disabilities into the labor market:⁶⁰

• Provide greater enforcement of Title I of the Americans with Disabilities Act (ADA) and increase access to workplace accommodations.⁶¹
• Eliminate 14(C) from the Fair Labor Standards Act, which allows businesses and organizations that obtain an exemption from the Wage and Hour Division to pay subminimum wages, harming the economic security of disabled workers.⁶²
• Enact state-funded assistance to supplement federal premium tax credits and cost-sharing reductions to improve the affordability of health insurance marketplace coverage. The federal government should also continue to encourage the remaining 10 holdout states to adopt the Affordable Care Act’s Medicaid expansion.⁶³
• Remove administrative burdens that harm disabled people applying for assistance programs. This includes increasing the flexibility of in-person interviews, expanding language offerings, reducing the difficulty of recertification requirements, and adequately staffing agencies.⁶⁴
• Fully fund HCBS, which can provide services and supports that help disabled people receive vocational services, job coaching, and personal caregiving while at work.⁶⁵

Workers with a criminal record

People with a criminal record­—particularly young adults—face systemic barriers to opportunity that affect all aspects of life and make it difficult to find and maintain any job. This leads to lower employment rates and higher unemployment rates among this population.⁶⁶

The following policy interventions that help bring more people with a criminal record into the labor market:⁶⁷

• Guarantee access to permanent photo identification (ID) post-incarceration. Several states have taken steps to make IDs more accessible, from helping cover the cost of IDs, to helping individuals acquire the necessary documentation to apply for an ID, to allowing individuals to exchange their correctional ID with a state ID.⁶⁸
• Ensure access to a social safety net that enables financial stability and employment. State and federal governments can work to end exclusions on social programs—such as the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and Medicaid—for formerly incarcerated individuals.⁶⁹
• Adequately fund and intentionally structure workforce development programs. State and federal governments should establish dedicated funding streams to support reentry employment programs and expand the allowable uses of funding to include other resources that support employment.⁷⁰
• Enact employment policies that facilitate access to the labor market. Automatic record clearance measures such as clean slate, fair chance hiring measures such as “ban the box,” and fair chance licensing laws that remove restrictions on professional licenses for people with unrelated prior convictions can all help ensure that individuals have a real shot at a second chance when returning to their communities after incarceration.⁷¹

Older workers

Workers 55 and older have not recovered from the pandemic, with a persistently low employment rate of 37.7 percent as of July 2023.⁷² Age discrimination often forces older workers to retire because they cannot find employment.⁷³ In an aging society like that of the United States, this means a loss of experienced and highly productive workers from the labor force—workers who are often difficult to replace.⁷⁴

Moreover, older women tend to participate less in the labor market than older men. (see Figure 7) For example, in 2021, the labor force participation rate for women between the ages of 55 and 64 was 64.8 percent, compared with 71.9 percent for men in the same group. Additionally, older workers—particularly women—are projected to participate more in the labor market by 2031, making clear that policy interventions focused on older workers are critical to ensuring the future of the labor market and the economy.⁷⁵

The following policy interventions can help bring more older workers into the labor market:

• Provide better enforcement of the Age Discrimination in Employment Act (ADEA).⁷⁶
• Provide paid extended medical leave. Older workers are much more likely than younger workers to be forced into early retirement after facing a health crisis.⁷⁷ Providing adequate time to recuperate improves health outcomes, which could help them keep working.
• Educate older workers who have significant health conditions on their rights to workplace accommodations under the ADA.⁷⁸
• Enact policies such as the FAMILY Act to promote greater equity in the labor market, helping close gender gaps in retirement income.⁷⁹

Black and Latino workers

Unemployment rates for Black and Latino workers have recovered since 2020, and Black people and Latinos are now working at unprecedented rates, with unemployment rates at or near historic lows.⁸⁰ Despite these improvements, Black workers still face an unemployment rate of 5.8 percent, as of July 2023, compared with just 3.1 percent for white workers. (see Figure 8) Black and Latino workers often face employment discrimination, and despite recent gains, they continue to experience a pay gap. (see Figure 9) In the second quarter of 2023, median weekly earnings were $851 for Latino full-time workers and $913 for Black workers—much lower than the $1,126 weekly earnings of their white counterparts.

An increase in the share of Black and Latino workers in occupations and industries where they have been historically underrepresented—such as finance, health care, and information technology—would boost the diversity of perspectives in crucial sectors, narrow the racial wage gap, and better represent the overall population and its needs, contributing to faster innovation.⁸¹

While Asian American and Pacific Islander (AAPI) Americans also face challenges in the labor market, disaggregated data are needed to better explore the employment differences within the AAPI community.⁸²

The following policy interventions can help bring more Black and Latino workers into the labor market:⁸³

• Ensure access to affordable job training programs and expand the use of apprenticeships.⁸⁴
• Enforce anti-discrimination laws in hiring and firing decisions.
• Create more opportunities for Black- and Latino-owned businesses to access federal, state and local contracts.⁸⁵
• Score proposed contractors and projects resulting from the Biden administration’s investment agenda at the agency level, in part based on workforce diversity goals.⁸⁶
• Develop local hire mandates and project labor agreements to diversify the workforce for new development and infrastructure projects.⁸⁷

Policymakers must lock in the economic progress made over the past few years and should not settle for a simple return to the pre-pandemic labor market. A tight labor market is an opportune time to find new ways to open quality job opportunities for workers who have regularly been shut out of the labor market. While this report’s recommendations are not comprehensive, they mark important first steps that federal, state, and local governments can take to make it easier for people to enter and stay in the labor market.

The bottom line is that policymakers can tackle the challenge to open up high-quality work options for millions of workers who have been sidelined for too long. Increasing the number of people who can find work is a worthwhile investment to help reduce longer-term inflationary pressures, grow the middle class, and grow the economy.