The US Participation Rate Is At A 35 Year Low: This Is How It Looks Broken Down By State

The US Participation Rate Is At A 35 Year Low: This Is How It Looks Broken Down By State

After years of being roundly ignored by the mainstream media, and certainly by self-important economists, the issue of labor force participation is suddenly up front and center, especially now that the Fed itself finds itself scrambling to explain the humiliation of hitting its 6.5% unemployment “forward guidance” threshold without proceeding to tighten as it said it would initially when it launched QEternity in December 2012.

Incidentally, we predicted precisely this when we said in December 2012 that “using a simple forecast, based on LTM trends across all key employment metrics reveals something very troubling, for the Fed and stocks that is: the 6.5% unemployment rate will be breached in July 2013! Now granted that is simply idiotic, and there is no way that the US economy could possibly recover that fast, but that is precisely what is implied based on the ongoing collapse in the Labor Force Participation, and the concurrent plunge in the Labor Force Participation rate, which has been the biggest marginal driver for the unemployment rate, far more than the number of people who have jobs, or are unemployed (readers can recreate our calculation on their own in 10 minutes with excel).”

Granted, we were off by six months, but we were spot on about the reason why the unemployment threshold number was hit so quickly, instead of as the Fed has originally predicted, some time in 2015/2016.

So now that absolutely everyone is laser-focused more on the participation print, recently at 35 year lows, than the actual unemployment number which even the Fed has implied is meaningless in the current context, one thing to note is that while the overall number is a blended average across the US, it certainly differs on a state by state basis.

In order to get a sense of which states are the winners and losers in the payroll to participation ratio, we go to Gallup, which conveniently has broken down this number on a far more granular basis.

Gallup finds that Washington, D.C., had the highest Payroll to Population (P2P) rate in the country in 2013, at 55.7%. A cluster of states in the Northern Great Plains and Rocky Mountain regions — North Dakota, Nebraska, Minnesota, Wyoming, Iowa, Colorado, and South Dakota — all made the top 10. West Virginia (36.1%) had the lowest P2P rate of all the states.

As Gallup explains

Gallup’s P2P metric tracks the percentage of the adult population aged 18 and older that is employed full time for an employer for at least 30 hours per week.  The differences in P2P rates across states may reflect several factors, including the overall employment situation and the population’s demographic composition. States with large older and retired populations, for example, would have a lower percentage of adults working full time. West Virginia and Florida — both in the bottom 10 — have some of the largest proportions of older residents, with more than half of each state’s adult residents older than 50 (52.9% and 51.5%, respectively), and both states rank in the bottom 10 states on the P2P index. Regardless of the underlying reason, however, the P2P index provides a good reflection of a state’s economic vitality.

Of course, this now defunct demographic explanation does not account for the fact that within the US labor force, the number of people employed aged 55 and over has just hit a record high, as it defeats the demographic explanation. So while one should ignore the rationalization, one should certainly be aware of which states skew the participation distribution on the high and low side.

Mapped, the data looks as follows:

The natural derivative of the participation rate is the underemployment rate in any one given state. Here we learn the following:

As with Payroll to Population rates, states in the Midwest — including North and South Dakota, Minnesota, Nebraska, and Iowa — were among those with the best underemployment rates in 2013.

Gallup’s U.S. underemployment rate combines the percentage of adults in the workforce that is unemployed with the percentage of those working part time but looking for full-time work. While P2P reflects the relative size of the population that is working full time for an employer, the underemployment rate reflects the relative size of the workforce that is not working at capacity, but would like to be.

And guess which states were by far the worst offenders when it comes underemployment:

California and Nevada have the highest percentages of their workforces not working at desired capacity. Their rates are about twice those of states at the other end of the spectrum, such as North Dakota (10.1%). Other states hard hit by the recession and declining housing market, including Florida and Arizona, rank among the states with the highest underemployment rates.

Hold on, hold on… Wasn’t it an age issue? Perhaps, instead, as this confirms using the relatively young western states it is a, gasp, ability and/or desire to work issue. Apparently that is precisely that case.

This is also what Gallup’s conclusion shows:

North Dakota, South Dakota, Nebraska, Iowa, and Minnesota ranked in the top 10 states on P2P rates in 2013, and in the bottom 10 for underemployment, as well as in the top 10 on Gallup’s Job Creation Index, highlighting the strong job markets in the Midwest.

In contrast, Mississippi, Florida, New Mexico, Hawaii, Michigan, and North Carolina ranked in the bottom 10 states on P2P rates, and are among the states with the highest underemployment rates. There is more overlap between the top 10 P2P states and low underemployment states than there is among the bottom 10 P2P states and high underemployment states on the two measures. That is mainly because many of the states with low P2P rates also have low workforce participation rates. They still have much room for both job growth and labor force mobilization.

Indeed they do, and since neither CA nor NV have a demographic problem, one can finally turn off the perpetually wrong rhetoric about a demographic crunch. Instead, one needs to structurally address the supply and demand sides of the labor market, because it is this that the US has a massive problem with. Far more so than even an aging workforce, which incidentally has been a boon to the unemployment rate as it is mostly workers aged 55 and older who have been hired over the past 5 years.

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