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Ohio’s labor pool continues to shrink

After trending upward for decades, labor force participation in Ohio has declined for four straight years and has plummeted to a 26-year low, according to a Dayton Daily News analysis.

Some of the causes are long-term and structural. Fewer teenagers are seeking and obtaining employment. More people are enrolling in post-secondary schools. Some older workers are calling it quits. And the share of woman entering the workforce has leveled off.

But millions of Americans, including a few hundred thousand Ohioans, would likely be in the workforce if the job market and economy were in better shape, according to some labor economists. See visual representations of unemployment trends in Ohio and nationally here.

Many of these workers are expected to return to the job market when economic conditions improve, which will impact unemployment and increase competition for open positions.

Ohioans sidelined from the labor market for long periods of time are more likely to struggle with job instability and reduced earnings when they decide to rejoin, experts said.

“Being displaced from a job has serious and long-lasting effects,” said Heidi Shierholz, a labor market economist with the Economic Policy Institute in Washington, D.C.

In 2011, about 64.1 percent of Ohioans 16 and older were in the labor force, which was the lowest participation rate since 1985, according to an analysis by the Economic Policy Institute of data from the U.S. Bureau of Labor Statistics. Members of the labor force are either employed or unemployed and actively looking for work.

In Ohio, labor force participation bounced around in the last three decades, but it trended upward, rising from 63.9 percent in 1979 to a peak of 67.8 percent in 2007, according to the data analysis.

Nationwide, labor force participation has steadily risen since the late 1940s, as women increasingly decided they wanted to work. Participation rates for men began falling around the same time, but the losses were more than offset by women breaking into the labor market. In 1948, about 33 percent of U.S. women were in the workforce. In 2000, that peaked to about 60 percent, and currently it’s about 57.7 percent as of December 2012, according to labor data.

But overall U.S. labor force participation rose in the late 1990s, and it crept downward through the mid-2000s. Then the recession hit, and the labor force quickly contracted. Between 1948 and 2012, men’s participation has dropped from more than 86 percent to about 70 percent.

Experts said the shrinking labor force is partly caused by demographic changes and structural shifts that were going to happen even if the economy had not crashed. Participation among women, for instance, plateaued, and began to edge downward.

“The rise in the overall participation rate that we saw for so many years, up until about 2000, was driven primarily by rising women’s participation, but that’s no longer the dominant force,” said William Even, Raymond E. Glos professor of economics with the Farmer School of Business at Miami University. “The other thing that’s happening is very young adults have seen marked declines in their participation rate.”

A degree to succeed

Beginning in the 1990s, more young people between the ages of 16 and 24 started choosing to stay in school and opting not to work, experts said. Labor force participation among Ohioans 16 to 19 years old fell to 44.2 percent in 2011 from 59.3 percent in 1999, labor data show. Between 1999 and 2011, participation for Ohioans 20 to 24 years old slipped to 74.7 from 79.7 percent.

One reason for these declines is that it has become harder to find work without a degree or special training. It is projected by 2018 that 57 percent of the new jobs planned for Ohio will require working adults with a college degree. So far, only 36 percent of working age adults have a degree. Employers want skilled workers and enrollment in higher education has soared. Also, fewer young people are expected to work while in school.

“Families are more concerned about schooling, so during the school year they don’t want their children working — they want them focusing on their studies,” Even said.

And then there’s the baby boomers, who began turning 65 years old on Jan. 1, 2011.

More than 10,000 boomers will turn 65 every day through 2030, according to the Pew Research Center.

More older workers are reaching their disability-prone years, and they are choosing to retire or go on disability, experts said. A record 8.8 million Americans received disability in 2012, up 24 percent from 7.1 million in 2007. Workforce participation for Ohioans 55 and older dipped to 38.9 percent in 2011 from 39.4 percent in 2007.

“As more and more baby boomers retire, we are going to have a smaller share of the adult population who are actively involved in the labor force,” Even said.

But the long-run trends were accelerated by the economic downturn, leading to sharp drops in the participation rate.

Many people are marginally attached to the workforce, and they typically stop looking for work when the economy struggles and they are forced to compete for lower-skilled positions with higher-skilled workers, said Lewis Horner, section chief of workforce research with the Ohio Bureau of Labor Market Information.

“In some cases, you have people with college educations taking jobs that don’t require a college education, because that’s what they can get right now,” he said. “What that might mean is they will push out the marginally attached people.”

Declining labor force participation indicates that the economy is not producing the types of jobs that make it attractive for more people to seek work, said David Blau, economics professor with The Ohio State University.

And a shrinking workforce can have negative economic consequences.

“It’s not so straightforward,” Blau said. “But you need people working in the labor force to contribute to economic growth, and also it means they are sustaining themselves as opposed to living off either their parents and relatives or the state.”

If there were better job opportunities, about 3.9 million Americans who are not in the labor market would be, said Shierholz, with the Economic Policy Institute.

If Ohio’s labor force participation rate in 2011 was the same as it was in 2007 — 67.8 percent — there would have been about 336,000 more Ohioans in the workforce, according to a Dayton Daily News analysis of labor data.

“Two-thirds of the decline in labor force participation (since the start of the recession) is made up of people who would be in the labor force if job opportunities were strong,” she said. “I call them ‘missing workers.’”

Many missing workers, who dropped out of the labor market, will return when the economy begins to grow robustly again, Shierholz said. But she said that could take years, and the longer workers sit out, the harder it will be for them to find and keep good-paying work.

“Long periods of job loss (and lack of employment) can have lasting effects on people’s earnings,” she said. “They will feel the scars from that for a long time.”

Workers who go long stretches without a job typically earn less after becoming reemployed than they did at their previous jobs, she said. Typically, they also have less job security.

If the job market shows strong improvement, it could also result in the declining unemployment rate to slow or stall, because more people would enter the job market. In December, Ohio’s unemployment rate fell by 0.1 percent to 6.7 percent, even though the state lost 9,400 jobs. State officials said the rate decreased because more workers dropped out of the labor force.

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