One likely hypothesis, discussed in a recent paper by the economists Katharine G. Abraham and Melissa S. Kearney, is that the rise in nonparticipation is related to declining opportunities for those with low levels of education.
Economists who study rising inequality, like my Harvard colleagues Claudia Goldin and Lawrence F. Katz, attribute a large share of it to skill-biased technological change — the tendency for advances in technology to enhance the productivity and wages of workers who have certain skills while reducing the demand for those who don’t. Unskilled workers are left with the choice of accepting lower wages or leaving the labor force. This hypothesis is consistent with the fact that labor force participation has fallen more for workers with lower levels of educational attainment.
Compounding these trends is international trade, which can have much the same effects as technology. Whether an American manufacturing worker is replaced by a robot or a Chinese worker, the result is the same: job displacement. (The benefit to consumers — lower prices — is the same, too.) If the jobs that remain available are much less attractive than the one a worker just lost, he may give up looking.