This month’s jobs report for Minnesota brought some good news: the state’s labor force participation rate was up, at 67.6% in January, according to the latest update. from the Bureau of Labor Statistics.
Unemployment is also down, to a long-time low of 2.9%. But that can be a bit misleading in today’s economy, because it doesn’t include people who have dropped out of the workforce and aren’t working or actively looking for work.
In contrast, the activity rate measures the share of the population aged 16 and over who are working or actively looking for a job. Because it includes all non-institutionalized adults in the economy, it says more about the share of the population that is working than the regular unemployment rate.
In the not-so-old days leading up to 2020, a 67.6% labor force participation rate wouldn’t have been good news. Minnesota has historically had one of the highest labor force participation rates in the nation, and before the pandemic, that rate was around 70%.
But the pandemic, with its shutdowns, supply chain disruptions and changes in people’s employment needs, has sent the workforce reeling over the past two years.
As more Minnesotans return to work lately, the state still has 119,000 fewer people in its workforce in January 2022, compared to January 2020 — a number roughly equivalent to Rochester’s population.
The gap is felt on the side of employers, who are still struggling to hire, but also consumers. That’s part of the reason why, despite more and more workers returning to work, store shelves can be short-stocked and why some neighborhood restaurants have reduced their hours. And despite this recent increase in the labor force participation rate, several underlying factors mean Minnesota may not return to its old rate any time soon.
When COVID-19 hit in March 2020, Minnesota’s unemployment rate skyrocketed from a pre-pandemic level of around 4% to 10.8%. About a fifth of Minnesota’s workforce filed for unemployment in those early days.
The jolt in the job market was more than the massive wave of layoffs: with children at home and other family obligations, many people – especially women – left the workforce to care for members of their family. Others have left due to health concerns related to the continued transmission of COVID-19. Another important factor was retirements.
A big wave of retirements was long overdue. Demographers have warned of a “silver tsunami” as the huge baby boom generation reaches retirement age. Minnesota’s labor force participation rate had actually been declining steadily since 2000, largely due to our state’s aging population.
Now, labor economists believe that many retirements have been hastened by the pandemic, due to health issues, family needs or because baby boomers with assets – whether a pension plan or real estate – have seen these assets appreciate dramatically, making retirement more financially viable for more people.
There is no state-level data that indicates how much of the reduction in the labor force is due to retirements, said Oriane Casale, deputy director of the Office of Labor Market Information. at the Minnesota Department of Jobs and Economic Development. But, she said, national data suggests that two-thirds of U.S. workforce losses since February 2020 have been among workers aged 55 and older. Only a third involved workers aged 20 to 55.
“Workforce exits from the older age group were driven by natural and accelerated retirements,” Casale said.
By the summer of 2021, many people who had been laid off at the start of the pandemic were back at work. An analysis by DEED project manager Alessia Leibert found that 77% of the 631,000 workers who had filed for unemployment at the start of the pandemic were working again in the spring of 2021.
Yet Minnesota’s labor force participation rate had not recovered. In the summer of 2021, it increased from a low of 67% in March 2021 to 67.3% in August, where it remained until December.
Leibert’s analysis suggests that Minnesotans of color had a harder time re-entering the workforce, and labor force participation data suggest the same.
Although the numbers are improving, “our black Minnesotans are having a harder time re-entering the workforce and finding jobs than our white Minnesotans,” said Angelina Nguyễn, director of research for the Office of Labor Information. DEED’s labor market, during the March employment report. Report. The labor force participation rate of Hispanic Minnesotans, meanwhile, has increased, but unemployment remains somewhat higher than that of white Minnesotans.
While women’s labor force participation was initially hit hard by the pandemic in Minnesota, data shows it is recovering mostly in tandem with men’s, Nguyễn said. State data does not distinguish between women with young children and the general population.
Although many remain out of the labor force, the overall participation rate has recently increased. Labor economists cite a few reasons for this. First, with a high percentage of the population at least somewhat immune to COVID-19, concerns about the virus appear to be diminishing, said Sinem Buber, chief economist at ZipRecruiter.
This is demonstrated by the consistency of the workforce across the omicron wave (although many have been sick) compared to previous waves of COVID-19.
Household savings are also down. JPMorgan Chase research found that families’ cash balances — especially low-income families — have increased significantly amid pandemic supports, Buber said.
In December, cash balances for low-income families were still 65% higher than they were in 2019, but that cushion is shrinking.
“It’s not a good way to look at it, but it’s a way for people to get back into the workforce — when they’re low on money, when their savings are dwindling,” Buber said.
Employers are also raising wages, and the wages of some of the lowest paid workers are rising the fastest, which should bring people back into the workforce.
Minnesota’s workforce woes aren’t unique, but they are, at least in some ways, worse here than in the rest of the country, Buber said.
While nationally there are 1.7 open jobs per unemployed person, on average there are more than 2.4 open jobs for every unemployed person in Minnesota, Buber said.
“Consumers continue to buy. We changed our drinking habits, but we didn’t give up our drinking,” Buber said. “So there is strong consumer demand, which explains this record number of job openings.”
Industries with the highest vacancy rates in the most recent data included agriculture, fishing and forestry, food preparation and serving, and personal care and services – industries that pay less than the average job in the state.
For Aaron Sojourner, a labor economist and associate professor at the University of Minnesota’s Carlson School of Management, the big question is whether employers will improve job quality enough to attract more people to the labor market.
While some employers – for example, a neighborhood restaurant – may operate with low profit margins and cannot easily increase salaries to compete for talent, many large companies have seen their profits increase but are not increasing salaries. or fail to expand employment, opting instead to make existing employers work harder.
“We have a situation where, in particular, corporate profits are at an all-time high. They rose very fast and much faster than wages or prices,” he said. “I think the big question is, will employers improve job quality enough to drive people away?” said Sojourner.
DEED Commissioner Steve Grove said last week when releasing jobs numbers that Minnesota’s labor shortage won’t move much without work in three main areas: getting people to move here (10,000 people left the state last year); finding ways to employ people who are not in the workforce, such as increasing employment equity and creating more opportunities for workers with disabilities; and automating more work, both to make jobs more attractive and to increase productivity.
“We were already anticipating, for demographic reasons, a decline in labor force participation before the very first case of COVID hit Minnesota,” Grove said. “So it was in many ways just an acceleration of a trend line.”