Current Labor Participation Rates Are Not That Low In A Broader Context
The labor force hit an absolute peak in the 90's. See the same statistic plotted on a much longer timeline:
The current labor force participation rate is several percentage points higher than at anytime prior to 1978. The labor participation boom of the 90's was probably due to some perfect storm of Clinton-era prosperity, women hitting the workplace, and generations being at just the right spot where 3 generations (greatest generation, boomers, generation X) are all working jobs.
Declining Labor Participation Rates Are Not Correlating With Tax Increases
You see the labor participation rate begin to decline steadily since 2001; now is that because George Bush raised tax rates and expanded the welfare state (no)? Or is it because the economy slowed down (yes)? In fact, while the labor participation rate was beginning to decline in 2001, the top marginal tax rate was not raised, George W Bush cut it three times during that decline, which contradicts the OP's thesis that these participation rate declines correlate with tax increases. Also, the decline finally leveled-off in 2014, which comes not very long after an increase to the top marginal tax rate in 2013.
Prime-age Male Labor Force Participation Has Been Declining For Over Half A Century
The share of prime-age men in the labor force has declined from its peak of 98 percent in 1954 to 88 percent today, reports the Council of Economic Advisers. This precipitous decline was largely masked as women entered the workforce in record numbers up until the 1990s, when their participation rate began to stagnate and eventually decline as well
Technology Has Reduced The Need For Labor
The CEA leans more on the demand side, suggesting that trade and technology have reduced demand for less-skilled labor, principally in the manufacturing sector.
Early 2000's Recession
The start of the labor participation decline coincides with an early 2000's recession that was caused not by labor participation or welfare, but a dotcom bubble burst.
The burst of the stock market bubble occurred in the form of the NASDAQ crash in March 2000. Growth in gross domestic product slowed considerably in the third quarter of 2000 to the lowest rate since a contraction in the first quarter of 1992.
The Great Recession
There is a noticeable, steeper decline in labor participation starting in 2008. This drop also strongly correlates with a recession, not taxes and benefits. In this case, it is the Great Recession, which was caused by a collapse in the housing and financial sectors due to poor banking regulation, credit default swaps, sub-prime lending, mortgage-backed securities, high private debt, and a housing bubble burst.
Confusing Cause and Effect
The OP is also confusing the mechanisms of cause and effect. When people become jobless, they turn to social programs to supplement their income; i.e. joblessness is the cause and social programs are the effect. "Receiving some form of government benefit" does not cause people to be jobless, as most of these benefits are a small fraction of the income needed for survival, and are often drawn by working people 1.
But the reality is, many people (44 percent) who rely on SNAP — the Supplemental Nutrition Assistance Program, as food stamps is now known — have at least one person in the family working
SNAP already requires able-bodied adults without children to find a job within three months and to work at least 20 hours a week or lose their benefits
Reemployment insurance is another government benefit that people don't draw on until they've lost their job. Again, job loss is the cause, and depending on government assistance is the effect.
Since supplemental income programs like SNAP and HUD can be utilized by low-income working Americans, a real way to reduce the utilization of these programs is to increase the number of good-paying jobs, and ensure that corporations are properly compensating their employees instead of pocketing the vast bulk of their profits.
How To Increase Labor Participation and Reduce Dependence On Government Assistance
Raise taxes on the wealthy and highly profitable corporations. Spend more federal money on things that stimulate consumer spending, create public and private sector jobs, and increase wages for workers. Consumer spending directly creates more private sector jobs; and if you put more money into the hands of the lower and middle class, consumer spending spikes.
- More civil service jobs.
- More infrastructure construction jobs.
- Guaranteed income / tax stimulus.
- Higher minimum wage.
- 35-hour work week.
- Clean energy subsidies.
- Partial student loan forgiveness.
- Stronger unions. (Average wages for private union workers is about $3.50/hour higher than average wages for private non-union workers 1.)
What Prevents The OP's Predicted Behavior?
Any social program that provides small supplemental income without a test on employment prevents this behavior. For example, if I have the choice of a) drawing a $2,500/year benefit and earning a $25,000/year income or b) drawing a $2,500/year benefit and NOT working; I'm going to choose option A, and so would everyone else, because it's easier to live on $27,500 than $2,500. The idea that benefits could discourage employment only applies when the benefit amount approaches a standard income and when the benefit is only given when you are unemployed. The vast majority of social programs (SNAP, LIHEAP, CHIP, Medicaid) only provide relatively small benefits (i.e. $126/month for SNAP), and are more concerned with your income than your employment status. Survival is more practical if a person continues working a job while they collect these means-tested benefits. Reemployment Assistance only pays a few hundred dollars a month, which is not enough to discourage most anyone from obtaining a $1,500/month job. Only a few benefit programs both provide enough income to live on and test your employment status -- social security retirement and disability.
This quote is also related to the question of whether benefit recipients really are voting into office the party that approves the benefits; and I think it does a good job of conclusively demonstrating that government benefits are not buying the favor of voters.
In 2012, presidential candidate Mitt Romney said that 47 percent of the population would vote Democrat no matter what. He claimed it was because they receive some type of federal assistance. Many people believe this myth. But the research shows that welfare and food stamp recipients don't vote much. They are so low income that they are too busy surviving to go to the polls.
In fact, the states that rely the most on federal benefits vote Republican. They often aren't aware of how dependent they are on tax credits, such as the interest deduction for home mortgage interest. They only consider visible federal benefits, such as welfare checks or food stamps. As a result, they don't think the government has done much for them personally.