Britain's companies are spending at last and powering growth

Much of recent history is being undone. Workforce participation peaked at over 67pc at the start of the 21st century. It had been stuck at 58-60pc between the end of the Second World War and the early 1970s, before a 30-year boom. This has now gone into dramatic reverse.

Economists are genuinely perplexed about the reasons for the collapse in US workforce participation. In the UK, employment is roughly at an all-time high; we have absolutely not suffered the same fate as the US in this area, quite the opposite in fact. Britain has different issues.

So what has happened to American workers? Some dropped out of the workforce during the recession, perhaps because they felt there was not much point in looking for a job. Many of these will have been members of a household where somebody still had work; many haven’t returned, perhaps because their skills are now obsolete.

There has also been a substantial demographic shift, with baby boomers retiring and many younger workers delaying their entry into the workforce by extending their studies. At the same time, those aged 55 and over who have yet to retire are actually doing well: their participation rate is extremely elevated, unlike that of the young.

Some blame the rise in automation for the reduced jobs market participation, but that smacks of the lump of labour fallacy. A better explanation would be that education and skills are inappropriate. Some groups have suffered large real-terms decline in pay, partly as a result of the tech revolution and improved global competition. These forces have helped make the world a richer, more prosperous place - but poor education and training has meant some US workers have given up. Lower wages for mundane roles (caused by a decline in the value of their output) has increased the opportunity cost of work, exacerbating the exodus.

There are many other reasons: a mad monetary policy, a destructive corporate and personal tax system, and endless regulation. But there is no one single explanation, and thus no silver bullet. America has a big problem. It is a society based on an uplifting moral argument: that hard work is good in itself, and that effort will allow people to achieve their dreams. Without work, this breaks down - so let’s hope the US works out what is wrong with its labour market and fixes it.

allister.heath@telegraph.co.uk

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