Compared to our neighbors to the north, the U.S. labor force participation rate is declining. In 2017, 87% of Canada’s prime-age workers (ages 18 through 54) were either working or actively looking for work, compared to 81.7% of U.S. prime-age workers. In the mid-1990s, both countries posted participation rates of around 84%.
There is a gap of 2.5% between U.S. and Canadian men in the labor force, while the gap between women is a much wider 8%. According to a new study from the Federal Reserve Bank of San Francisco, about 75% of the divergence between U.S. and Canadian labor force participation is due to the large gap between the numbers of women in both countries’ labor pool.
The researchers noted a difference in women’s labor force participation between Canadian and U.S. women based on educational levels. Some 87% of college-educated women in Canada were in that country’s 2016 labor market, compared to 82% of college-educated U.S. women. The difference in labor force participation in the same period by women with a high-school education shows a seven-percentage-point gap favoring Canadian women.
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What has caused the difference? Here’s what the researchers have to say:
Two other sets of policies aimed directly at supporting parental attachment to the labor force have followed significantly different paths in the United States and Canada over this period: subsidizing childcare costs and parental leave.
Subsidized childcare, which is federally mandated in Canada, varies widely in costs. In Montreal, for example, a month of childcare cost C$174 in 2015 compared to a cost of $1,033 a month in Toronto. Prior research has found that subsidy policies of this kind have offered “little evidence of their effectiveness.” The Fed study noted, too, that universal preschool programs in Georgia and Oklahoma that have been in place since the 1990s “had little impact on the likelihood of mothers working.”
Canada’s generous parental leave policies, however, “provide strong incentives for women to remain attached to the labor force.” The Fed study noted:
[A] person’s job is protected with the same wages and benefits continuing to accrue during the leave, and a system of benefits funded out of employment insurance provides income replacement during the leave. Thus, a parent on leave maintains a continuous employment relationship, and this protection can last for up to 78 weeks in combination with existing maternal leave (with some variation across provinces).
The study concludes:
The contrast between the incentives Canada and the United States offer prime-age workers to remain attached to the labor force is clear. A large pool of skilled potential workers could be encouraged to join the labor market with the right set of policies. By reversing the trend in participation of prime-age women to catch up with Canada’s labor market participation rate, the United States could add as many as 5 million prime-age workers to its labor force.
With more U.S. jobs available than workers seeking to fill them, attracting women back into the workforce is a clear winner. It comes at a cost, however, that neither government nor private enterprise appears willing to pay. It’s always easier — and politically safer — to complain.
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