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ISSUE REVIEW Fiscal Services Division July 1, 2019

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ISSUE REVIEW Fiscal Services Division July 1, 2019 ISSUE REVIEW Fiscal Services Division July 1, 2019 Ground Floor, State Capitol Building Des Moines, Iowa 50319 515.281.3566 Iowa Labor Force Nonparticipation Note: Revised and republished with updated information on August 26, 2019. ISSUE The Future Ready Iowa Alliance was created with Governor Terry E. Branstad’s Executive Order 88 in 2016. The goal of Future Ready Iowa is for 70.0% of Iowa’s labor force ages 25 to 64 to have education or training beyond high school by 2025.1 Iowa needs an additional 127,700 residents to earn postsecondary degrees and other credentials by 2025 to achieve the level represented by the Future Ready Iowa goal of 70.0%. The Iowa Department of Workforce Development (IWD) shows Iowa had approximately 64,000 job openings in November 2018 and shows Iowa had approximately 32,000 unemployed persons during October 2018. If more people with education or training beyond high school moved into Iowa’s labor force, this would help Iowa reach the stated Future Ready Iowa goal while maintaining the current labor force. This Issue Review will examine Iowa’s labor force participation rate, the demographics of those not participating in the labor force, and strategies to increase participation. AFFECTED AGENCIES Iowa Department of Workforce Development Iowa Department of Education Iowa Department of Corrections Iowa Community Colleges Iowa Department of Human Services Iowa Vocational Rehabilitation Services Iowa College Student Aid Commission DATA AND DEFINITIONS The data used below in this Issue Review is from the Local Area Unemployment Statistics (LAUS), a federal-state program that produces monthly and annual estimates of total employment and unemployment. The underlying concepts and definitions in the LAUS data come from the Current Population Survey (CPS), the household survey that is the official measure of the labor force for the nation. The following Labor Force Concepts are used by the U.S. Bureau of Labor Statistics: • Civilian Workers consists of all private industry and state and local government workers. Federal government, military, and agricultural workers are excluded. 1 Future Ready Iowa Metrics That Matter examines the data behind Iowa’s skills gap. www.legis.iowa.gov July 1, 2019 Issue Review 2 • Employed Persons consists of all persons who, during the reference week, (a) did any work at all (at least one hour) as paid employees, worked in their own business or profession or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family, or (b) were not working but had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, child care problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. • Labor Force (Labor Force) consists of all civilian persons classified as employed or unemployed. • Labor Force Nonparticipants (Nonparticipants) consists of the population who are classified as neither employed nor unemployed. • Labor Force Participation Rate (Participation Rate) represents the civilian labor force as a percent of the population. This is calculated as the labor force (employed and unemployed persons) divided by the population. • Noninstitutional Population (Population) consists of persons 16 years of age and older residing in the 50 states and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces. • Unemployed Persons consists of all persons who had no employment during the reference week, were available for work (except for temporary illness), and had made specific efforts to find employment some time during the four-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed. • Unemployment Rate represents the number unemployed as a percent of the labor force. This is calculated as the number of persons unemployed divided by the labor force. While the labor force participation rate measures the total percent of the noninstitutional population 16 years old and older that is employed or unemployed, the unemployment rate measures the percentage of the total civilian labor force that is seeking and does not have employment. If a person is not employed and the person decides to not seek employment any longer, the person would no longer be considered unemployed. The person will now be considered a labor force nonparticipant. This would decrease the unemployment rate while at the same time decreasing the labor force participation rate. BACKGROUND A number of economic and labor indicators are available to examine the labor force: labor force data, such as the unemployment rate, from the Iowa Department of Workforce Development; the Iowa Leading Indicators Index produced by the Iowa Department of Revenue; a state’s Gross Domestic Product from the U.S. Bureau of Economic Analysis; and data from the Current Population Survey produced by the U.S. Census Bureau. The labor force participation rate is another tool used to analyze the labor force. Nationally, the labor force participation rate fell from 66.0% in CY 2008, the start of the most recent recession, to 62.9% in CY 2017. The Iowa labor force participation rate also fell from 72.4% in CY 2008 to 68.4% in CY 2017. Labor force participation has not kept pace with Iowa’s growing population, leading to a decrease in the labor force participation rate. With employment increasing and the labor force participation decreasing, Iowa will also see a decline in Iowa’s unemployment rate. www.legis.iowa.gov July 1, 2019 Issue Review 3 CURRENT SITUATION Labor Force Participation Rate Chart 1 presents the labor force participation rates for Iowa and the United States for the calendar years 2008 through 2017. The national labor force participation rate declined from 66.0% to 62.9%, while the 10-year average rate is 63.8%. In Iowa, the labor force participation rate declined from 72.4% to 68.4%, with upticks in CY 2013 and CY 2014, while the 10-year average rate is 70.3%. Chart 2 shows the relationship between Iowa’s labor force participation rate and the unemployment rate. Iowa labor force participation decreased by approximately 700 workers from CY 2008 through CY 2017 and did not keep pace with the population increase of approximately 135,000 (5.8%). This led to a decrease in the labor force participation rate. The unemployment rate decreased as employment increased by approximately 17,000 (1.1%). Since employment increased while the labor force participation decreased, this caused the unemployment rate to decrease. The nation as a whole demonstrated a similar trend. The U.S. population increased by approximately 21.3 million people (9.1%), labor force participation increased by approximately www.legis.iowa.gov July 1, 2019 Issue Review 4 6.0 million people (3.9%), and employment increased by approximately 8.0 million workers (5.5%), resulting in a decrease in the national unemployment rate from 5.8% in CY 2008 to 4.4% in CY 2017. Nonparticipants in the Labor Force The data used in the remainder of this Issue Review, unless otherwise stated, is from the Current Population Survey produced by the U.S. Census Bureau. Iowa has approximately 731,000 people not participating in the labor force based on CY 2017 data.2 Table 1 of Attachment A displays labor force nonparticipants by education attainment. Approximately 43.5% of Iowan nonparticipants 25 years of age or older do not have any education beyond high school. The data shows that persons currently under the age of 65 are more likely to have education beyond high school. The data also shows that a person with less than a high school diploma has a 63.9% likelihood of participating in the labor force. That likelihood goes up to 74.4% if the person has a bachelor’s degree or higher. Therefore, the data may suggest that increasing a person’s education will increase the likelihood that the person will participate in the labor force. There are 140,000 Iowans who are at least 16 years of age and under 55 years of age who do not currently have education beyond high school who are not participating in the labor force who may be available to help meet Iowa’s demand for labor. Since labor force nonparticipants 55 years of age and older might age out of the labor force before the Future Ready Iowa goal date of 2025, and nonparticipants under the age of 25 may still be on track to obtain education or training beyond high school, it might be informative to look at Iowans who are at least 25 years of age and under the age of 55 who are currently not in the labor force. There are currently approximately 109,000 Iowans who are at least 25 years of age and under the age of 55 who are currently not in the labor force, and 88.9% (96,900) of those do not currently want a job. The remaining 12,100 may be able to be placed in the labor force. Table 2 of Attachment A displays labor force nonparticipants by age. A total of 731,000 Iowans do not participate in the labor force. Approximately 480,000 (65.7%) of the Iowa nonparticipants are 55 years of age or older and approximately 73,000 (10.0%) are 16 to 18 years of age.
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