Labor Force Participation Rate Downward Trends Persist Post-Recession

Written by: Abbey Frazier

Primary Source: Michigan Policy Wonk Blog, February 13, 2017

When it comes to measuring the health of the labor market the official unemployment rate tends to get most of the attention, but this metric alone does not explain the entire story.

Other indicators exist that measure labor market health from different perspectives in order to evaluate various elements of the labor force, such as marginally attached workers or employment-to-population ratios. Because unemployment rates are based only on the number of individuals actively seeking employment among the total number of people in the workforce, it fails to capture an important part in understanding what is going on behind the scenes: the rate in which people are either participating in the work force or sitting out altogether. This concept is represented in what’s known as the labor force participation rate. This percentage can provide insight into something the unemployment rate cannot: the confidence that American workers, or potential job-seekers, have in the labor market.

While the unemployment rate is calculated by dividing the number of unemployed persons by the total number of individuals in the labor force, the labor force participation rate is the share of the population as a whole that is either employed or unemployed (that is, either working or actively seeking work) (link is external). This percentage captures the rate in which people are participating in the workforce, regardless of whether they are fully employed, part-time employed, or out there looking for a job.

Since the Great Recession, the official unemployment rates have recovered to pre-recessionary levels for most of the country, including Michigan. On the surface, this is a positive sign of economic recovery in the labor force; however, when viewed alongside a steady decline in labor force participation rates, it suggests that this trend may be more of a red herring than a sign of economic improvement. If labor force participation were declining due to discouraged workers giving up on looking for work, unemployment rates would fail to capture these individuals, leading to artificially low unemployment rates. On the other hand, because labor force participation is based on the entire population, declining participation could also be explained by less concerning reasons, such as an aging workforce. Trends in labor force participation in Michigan, the Midwest and the United States between 2009 and 2015 are shown in Figure 1:

Source: U.S. Census Bureau, American Community Survey

Researchers and academics have posed various theories for what they believe may be the cause of declining labor force participation, ranging from health issues (link is external) to video games (link is external). The truth likely lies somewhere in between, dependent on demographic group and geographic location. While Michigan has lower participation rates overall in comparison to national and regional averages, the map in Figure 2 shows that rates are even more widely varied across the state. It is also worth noting that while Northern Michigan appears to have exceptionally low labor force participation rates, aging workforces in these areas could be playing a role in lower participation rates. Expectedly, the state’s concentrations of higher than average labor force participation rates are clustered around cities, with the exception of Detroit in Wayne County.

Figure 2. Labor Force Participation Rates by County, 2015

Source: U.S. Census Bureau, American Community Survey

While it is clear that consistent declines in labor force participation trends in Michigan and across the U.S. should serve as a cause for concern, a deeper dive into the demographics behind the trends must be explored before any conclusions regarding the cause can be reached. In the meantime, keeping an eye on trends in labor force participation rates with the same due diligence as the official unemployment rate will be crucial in beginning to understand the full picture of the post-Great Recession labor market.

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Abbey Frazier
Abbey entered the Masters in Public Policy program in the fall of 2016 and she currently works as a policy fellow for Michigan State’s Institute for Public Policy and Social Research (IPPSR). She has also worked as a budget & policy analyst for the State Budget Office covering health and social welfare policy and financing since 2014. Abbey received her B.A. in economics from Michigan State in 2013.