Labor Force Participation Declines in States, Inflates Jobless Rate

Many states have experienced large drops in labor force participation since the recession began. View historical data for each state.
by | May 14, 2012 AT 2:45 PM

Despite adding a mere jobs 115,000 in April, the nation’s unemployment rate further receded to 8.1 percent.

Many states reported similar jobless rate declines in recent months. The improvements haven’t been driven by significant jobs gains, though, as much as steady reductions in the labor force.

The labor force participation rate – the civilian population either employed or looking for work -- has fallen 2.4 percent from the start of the recession to 63.6 percent, the lowest level since 1981.

Governing compiled Labor Department data for all states, showing some have experienced significant shifts during the economic downturn. Participation rates have declined in all states since the recession began in December 2007, with the exception of Virginia.

Many job seekers dropped out of the labor force. This, along with the nation’s aging population of retirees, has pushed down rates in recent years.

“When you’re having big economic swings like this, then some changes you see in labor force participation reflect the state of the economy,” said Barry Hirsch, professor of economics at Georgia State University.

Many of those exiting the labor force opted for retirement. Others put job hunts on hold to go back to school and boost their employment prospects, further curtailing labor force totals.

Hirsch said participation rates for states with high populations of young people and those near retirement typically fluctuate the most. Moreover, certain demographic groups are less attached to the labor market, such as African American males, he said.

Utah’s participation rate has plunged 5.7 percent since the start of the recession – the most of any state.

The decline was mostly influenced by the state’s population of young workers, hit particularly hard by the recession, said Jim Robson, regional economist for the Utah Department of Workforce Services. Utah had a median age of 29.2 years in the 2010 Census, by far the lowest in the country.

“Our demographics have accentuated that decline among young people who have had difficulty getting jobs as a result of the recession and are going to or staying in school,” Robson said.

In 2007, Utah’s annual labor force participation rate was 54.7 percent for those ages 16 to 19. By the end of 2011, that figure had fallen to 42.4 percent.

In many respects, the state’s economy has fared better than others. Utah’s unemployment rate stands at 5.8 percent, well below the national rate.

States with high participation rates before the recession mostly reported stronger job growth than those with historically low rates, according to Hirsch’s analysis of the data.

The following states experienced the largest labor force percentage decreases since the start of the recession:

State Current Participation Rate Change Since 12-2007
Utah 62.6% -5.7%
Delaware 57.3% -4.7%
Michigan 54.8% -4.5%
New Mexico 54.5% -4.4%
Georgia 58.3% -4.1%
Colorado 63.7% -3.8%
Florida 55.0% -3.8%
Alabama 53.0% -3.8%
Hawaii 58.3% -3.6%
South Carolina 54.0% -3.3%

Monthly figures, shown below, further illustrate changes in labor force participation over time.

Some states with noteworthy job losses in recent years rank high on the list. It’s hard for economists to gauge, though, just how much the economy accounts for lower participation rates rather than demographics.

Federal Reserve Bank of Atlanta Research Director David Altig wrote last week that demographic factors explain about 40 percent of the falling U.S. labor force participation rate since 2000.

Doug Hall, director of the Economic Policy Institute’s Economic Analysis and Research Network, said multiple indicators must be assessed to better understand job markets.

A reduced labor force, for example, has inflated the unemployment rate. The U.S. labor force participation rate fell 0.2 percent last month, helping to lower the unemployment rate to 8.1 percent. The jobless rate would have jumped to 8.4 percent had the labor force remained at March levels, according to Federal Reserve Bank of Atlanta.

Labor Department data indicates the labor force shrunk in 17 states since the start of the recession.

Hall said the historically-low participation rates point to a dramatically underutilized work force. Well-qualified college graduates struggle to find employment. At the opposite end of the spectrum, experienced workers are often forced into early retirement.

“We’re at risk of having a lost generation at both ends if we’re not careful,” Hall said.

View labor force participation for each state:

Source: U.S. Bureau of Labor Statistics