On a national and local level, we typically interpret unemployment rates as an indicator of economic well-being. This paper argues that the Labor Force Participation Rate (LFPR) offers a more complete picture of a region or nation’s economic health. Using the Lincoln Trail region in Kentucky, we illustrate the ways that LFPR contributes to an understanding of the quality of jobs, the willingness of employers to engage the workforce, and the level of alignment between education, workforce development, and economic development.
by Katie Stewart Dorfman, MSW and by Pieta Blakely, PhD
The U.S. is enjoying its lowest unemployment rates since 2007. Both nationally, and locally, we interpret low unemployment as an indicator of economic growth and well-being. But unemployment misses an important part of the story (Some alternate measures of employment are here). Tracking only the number of individuals who are actively looking for work, unemployment figures do not include people who are not in the workforce at all -- stay-at-home parents, students, retirees, and people who have become discouraged and stopped looking for work.
The Labor Force Participation Rate (LFPR) is the number of individuals over 16 who are employed or unemployed divided by the total population over 16 who are not institutionalized. It measures the capacity of the population to work and the economy’s demand for labor, providing indications of the quality of alignment between the economy, education, and workforce development.
To illustrate how labor force participation and the unemployment rate can affect our understanding of economic health, we can look at the Lincoln Trail region in Kentucky. This region, comprised of eight counties, is one of 15 Area Development Districts in the state. These entities are federal/state/local partnerships that serve as regional planners and provide technical assistance to the public and private sectors. Many of them also run programming and services, including, as in Lincoln Trail, overseeing the regional Workforce Development Board and its One Stop Career Centers.
The Lincoln Trail Area area recently boasted a 4.29% average unemployment rate across all eight of its counties at a time when the national average was 4.9% . It would be easy to assume, based on this figure, that the Lincoln Trail area is faring economically similarly (if not better) than the country as a whole. For this same period, however, the LFPR for the Lincoln Trail area was 61.7%, while the national figure was higher, 63%. This prompts us to ask about the underlying differences in this seemingly disparate data, and question which of the figures tells a more accurate story about what is happening on the ground. The reality for the workforce and business owners in the region differs from what unemployment statistics might lead us to believe.
In reality, hiring managers have difficulty hiring and retaining workers, so much so that over the past year the Workforce Development Board has begun implementing a strategic plan to address what they are calling a workforce shortage crisis. Coordinating the work of solving the crisis is the Workforce Crisis Task Force, an ad-hoc committee of the Workforce Development Board. The Task Force comprises representatives from the business, education, training, social services, and economic development communities. While the Task Force is taking a multi-pronged approach to solving the crisis, the overarching long-term goal of the group is to raise the regional labor force participation rate.
The LFPR indicates the quality of local jobs. For some potential workers, entering the workforce won’t make sense unless they earn more than a certain wage -- say more than the cost of commuting, or more than the cost of child care. In times when there is a lot of opportunity for employment and high wages, some people will opt back into the labor force. For example, someone who works in the construction trade told me recently that the opportunity is so good in that industry now that people have been coming out of retirement to add to their nest eggs. Similarly, in the Lincoln Trail area, employers have been able to bring workers into the workforce by implementing simple internal practices such as not requiring overtime.
An increase in the LFPR can also indicate the willingness of employers to engage workers with disabilities or to better enable marginalized people to participate in the workforce. Additionally, it can indicate that a community or region has made investments in services and supports that help marginalized individuals obtain and maintain employment. Statewide in Kentucky, it appears difficult for individuals with disabilities to obtain employment - only 27.4% of these individuals are employed, while the national average is 34.9% . Similarly, there is anecdotal evidence in the Lincoln Trail area that a sizeable portion of individuals who have concerns about their own substance use (past and present) or justice system involvement believe that their prospects for obtaining employment are poor enough that it is not worth pursuing. These are many of the individuals who make up the latent workforce, and part of the work ahead for the region is combating their perceptions. This will entail a multi-pronged approach, including supporting employers to create low- or no-cost practice and internal policy changes, conducting targeted outreach to those disconnected from the workforce, and building authentic and sustainable connections between these two groups.
The LFPR can also signal the quality of education and training in the region, and how well-suited these systems are to meet regional economic demands. More people will remain in the workforce if they have basic skills such as literacy and work skills that match the needs of local employers. Potential workers are more likely to drop out of the workforce entirely if they know that their skills are not a match for employer needs. One way the Lincoln Trail region is combating this is by focusing on Work Based Learning Opportunities such as apprenticeships, internships, and structured job shadowing. WBLOs help students make connections with local employers, ensure that graduates have skills that are aligned with business and industry needs, and in some industries have been shown to increase the likelihood that students will stay in a region after graduating.
Although the Lincoln Trail area is responding to a workforce shortage crisis overall, some employers report strong hiring and retention numbers within their individual organizations. They attribute this factor to accommodating the training needs of their employees, including working with education and training programs to find customized structures and scheduling for learning, along with reasonable policies around drug testing and hiring individuals with criminal justice involvement. With the establishment of the Workforce Crisis Task Force, businesses are also joining together to share best practices and policies (many of which are low- or no-cost) that help attract and keep employees.
This case illustrates that using LFPR as a metric is more effective than looking at employment rate, and creates an opportunity for regions to look at the way they are coordinating education and workforce systems for the well-being of their region.
Erceg, C. J., & Levin, A. T. (2013). Labor force participation and monetary policy in the wake of the Great Recession (Working Paper No. 13/245). Washington, DC. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Labor-Force-Participation-and-Monetary-Policy-in-the-Wake-of-the-Great-Recession-41133