By on 7.20.21 in Economic Data, NC in Focus

The labor force participation rate describes the percentage of people 16 or older who are working or actively looking for work. Nationally, the seasonally-adjusted labor force participation rate for the United States in June 2021 was 61.6%. In North Carolina, the participation rate was 59.2%, 2.4 percentage points below the national rate.

Why does the labor force participation rate matter and what does it tell us?

The labor force participation rate is a measure of how connected individuals are to the labor force. Because labor force participation includes those who are actively looking for jobs as well as those currently employed, it is important to note that it is not a measure of unemployment. For example, the labor force participation rate can be high while there are also high unemployment rates.

When labor force participation rates increase, more people are working or looking for work. When labor force participation rates decrease, fewer people are working or looking for work. This can occur for a variety of reasons, including retirement, child-rearing, and postsecondary education.

Declining labor force participation rates due to a rise in discouraged workers raise concerns for both economists and demographers. This term describes people who want to work and have actively looked for work in the past 12 months, but have stopped looking for work in the month prior to being surveyed because they believe there are no jobs are available for them.

Nationally, the number of discouraged workers has vacillated from before the pandemic until now. In June of 2019, there were 412K discouraged workers across the United States. This number rose to 678K discouraged workers in June of 2020. In June of 2021, the number was lower than it was last year — there are now 617K people who can be described as discouraged workers. Overall, between June 2019 and 2021, there was a net increase of 205k discouraged workers.

Prior to the pandemic, what did North Carolina’s labor force participation look like?

Prior to the pandemic (May 2019), North Carolina’s overall labor force participation was (seasonally-adjusted) 61.5%, below the national rate of 62.9%. Rates varied across demographic groups and communities. For example labor force participation rates are lower for young adults (16-24) and those older than age 50. Among early career-adults (ages 25-44), we saw lower rates among:

  • Women
  • Rural counties
  • American Indian residents compared to other racial/ethnic groups

How has the labor force participation rate changed in NC since the pandemic?

According to monthly data from the Bureau of Labor Statistics: in May 2019, the seasonally-adjusted labor force participation percentage for North Carolina was 61.5%, meaning that almost 62% of the labor force was seeking employment or employed. In 2020, this percentage dropped to 57.7% and in 2021, it rebounded one percentage point to 58.7%.

The labor force participation rate in North Carolina has dropped from before the pandemic to now. Paying attention to these rates will be important over the next few months. Some of the questions we are thinking about include:

  • What will happen in the fall when children will be expected to return to school?
  • How will the push ‘back to in-person work’ affect these rates?
  • Will we see more women leaving the workforce?

These are all questions that economists, demographers, and other social scientists will be looking at closely to see how the pandemic continues to affect the labor force. We’re seeing a dip in labor force participation not only in North Carolina, but in the US overall — though NC continues to have a lower rate than the overall US and this gap is wider after the pandemic than it was before.

How has the pandemic specifically influenced labor force and employment?

The COVID-19 pandemic has impacted the labor force significantly. Although cities and towns across the United States are opening up, as well as increasing rates of vaccinated Americans, employers are reporting worker shortages. That is, while there are open jobs, there are not enough people applying and accepting these positions.

There is debate about what is driving the continued decline in labor force participation. Some economists argue that there’s a “mismatch” between the jobs that are currently open and the skill sets of the potential employees. Others point to continued disruption in childcare and schooling (i.e., increased family needs) or fears around the disease that may be keeping individuals of the labor force.

Several states, including North Carolina, introduced legislation to eliminate federal $300-per-week unemployment benefits, which were scheduled to run through September 4, 2021, as part of the American Rescue Plan. The intention behind this was to motivate more potential employees to re-enter the workforce, but it is too early to tell whether these efforts have increased labor force participation rates.  Alaska, Iowa, Mississippi, and Missouri ended their federal unemployment benefits on June 12, 2021. Alabama, Idaho, Indiana, and Nebraska discontinued the extra $300 on June 19. Arkansas, Florida, and Texas are some of the states that stopped benefits on June 26. Finally, Maryland and Tennessee ended theirs on July 3. The North Carolina legislature introduced and passed a bill to eliminate these benefits as well. Governor Cooper, however, vetoed the bill on July 2nd and it is unlikely the legislature will be able to override the veto.

What are demographic differences in the pandemic's impact on labor force participation?

The National Women’s Law Center (NWLC) reports that nationally, between February 2020 and February 2021, 2.3 million women left the workforce, dropping women’s labor participation to its lowest rate since 1988. This is compared to the 1.8 million men who lost their jobs in that period. In May 2021, the NWLC reported women in the workforce have increased by 314,000 but predict that there needs to be 13 months of continuous growth to return to women’s employment to pre-pandemic levels. Research indicates that women’s exiting the workforce during the pandemic was largely because of of school and childcare virtual change and closures.

In addition, a Washington Post May 2020 poll found that since the start of the pandemic, 20% of Hispanics and 16% of Blacks being laid off or furloughed since the pandemic began. This is in comparison to 11% for Whites and 12% of other races, indicating that shifts in the labor force were primarily affecting certain ethnic/racial groups. Economists specify that those ethnic/racial groups experiencing the largest layoffs is due to their overrepresentation in industries most affected by social distancing mandates and stay-at-home orders. This includes leisure and hospitality, retail, and construction. All of this information suggests that different racial/ethnic groups have disproportionate rates of labor force participation due to the pandemic.

In summary, while data shows that the economy is rebounding, existing inequities in labor force participation have been exposed more concretely. Because the pandemic is still ongoing, we don’t know the full extent of how these impacts varied by demographic group in North Carolina. However, we do know that some of these differences were already present in labor force participation rates pre-pandemic, and that the gaps between groups may have widened due to the pandemic.