There are lies, damned lies and statistics. – Mark Twain
America’s job picture appears to be seeing a huge improvement, with robust numbers that are giving investors’ confidence in the economy. The U.S. added 248,000 jobs in September, bringing the national unemployment rate below 6 percent.
However, unemployment rates provide an incomplete measure of local labor market conditions. Unemployment does not include involuntary part-time workers; nor does it include discouraged workers who stop seeking work because they cannot find jobs. If we were to look at the labor force participation rate, which is essentially the percentage of persons 16 years of age and older that are classified as employed or unemployed (but looking for a job), we would see a different picture.
The labor force participation rate grew from about 60 percent nationally in 1970 to about 67 percent in 2000, with much of the increase resulting from increased participation by women. Unfortunately, the American labor force has been shrinking for more than a decade, and the September participation rate fell to 62.7%, marking the lowest level since 1978. The falling participation rate has been a hotly debated topic for some time, but the puzzle is even more confusing given the string of solid jobs gains and the continued drop in the unemployment rate.
A detailed new report from the White House Council of Economic Advisers estimates the majority of the decline has been driven by the retirement of the Baby Boom generation and that only one-sixth of the decline is clearly attributable to a weak economy. Other economists, however, believe that the decline in the labor force participation is a result of a historically weak economy and the unprecedented numbers of Americans who have lost their jobs and given up hunting for another one. Research from different arms of the Federal Reserve, such as this paper from a Boston Fed conference and this paper from the Philadelphia Fed, has reached contradicting conclusions.
So, how does our local labor force participation rate compare?
For selected areas, the U.S. Bureau of Labor Statistics Local Area Unemployment Statistics program produces current estimates of labor for participation rates. This includes all 50 states, the District of Columbia and a handful of large metropolitan area, excluding the Lexington-Fayette MSA. Thus, to estimate labor force participation locally, we used the U.S. Bureau of Labor Statistics Local Area Unemployment Statistics data to calculate the size of the labor force and Census Bureau population estimates to estimate the age-16-and-up population of Fayette County (per this ARC report, Local Area Unemployment Statistics data may validly be combined with Census population estimates to determine the labor force participation rate).
As the chart below indicates, the decline in national labor force participation is mirrored by both state and local data, although Fayette County appears to have experienced a much more dramatic drop in labor force participation, followed by a leveling off that, as of 2013, was comparable to the national rate.
Annual Average Labor Force Participation Rate
What about the big drops in participation locally?
While our diverse economy continues to reflect national trends, Lexington has experienced a fairly rapid growth in its working age population. The population age 16 years and over grew from 204,082 to 248,945 between 2005 and 2014, representing a 22% increase. Since the labor force is expanding at a slower rate than the population, the participation rate is going down. The large drops in labor force participation on the chart are reflective of significant jumps in the overall working age population, which were primarily due to an increase in college-aged residents. It could be that the younger populations that are largely responsible for the area’s population growth are enrolled in college, and thus, not part of the labor force. The good news for Lexington: rising education levels increase labor force participation rates in the long-term.
– CLX Economic Development Team
Commerce Lexington Update
- Commerce Lexington is leading a group of Lexingtonians through Dubai this week. The itinerary includes time dedicated to exploring the connections between Central Kentucky and Dubai, including a meeting at the Dubai Chamber of Commerce, a look at the Dubai Thoroughbred racing tradition, and a visit with representatives of Dubai businesses with Kentucky connections.
- The Kentucky Association of Manufacturers and the Kentucky Chamber of Commerce is hosting the first Kentucky Manufacturing Innovation Conference on October 24th at the Lexington Center. The one-day event is designed to bring the state’s manufacturers together to discuss, share and learn about cutting edge manufacturing innovations and technologies that can help increase productivity, improve quality and add to the bottom line. The conference is an initiative of BEAM, the Bluegrass Economic Advancement Movement, a partnership between the mayors of Lexington and Louisville and the Brookings Institution.