Oregon Labor Market Information System
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Oregon's Falling Labor Force Participation
by Nick Beleiciks, Tracy A Morrissette, Pat O'Connor
Published Jun-24-2013

 
Oregon's labor force participation rate (LFPR) climbed gradually from 63.0 percent in 1976 to 68.9 percent in 1998. Long-term trends have been driven largely by the Baby Boom Generation and increases in women's participation. After peaking in 1998, the labor force participation rate declined over the following years. Much of the drop occurred during and following Oregon's recession that began in 2001; the rate declined from 68.2 percent to 65.7 percent between 2001 and 2005. This was the biggest drop Oregon has ever experienced over a four-year period.

Between 2005 and 2008, Oregon's labor force participation rate remained fairly stable, hovering around 65.7 percent.

Beginning in 2009 and continuing to the present, Oregon's LFPR is again showing sharp declines. The rate fell from 65.8 percent in 2008 to 63.4 percent in 2012, nearly as steep of a decline as occurred between 2001 and 2005. The only other time the rate was this low was in the first year of the series, at 63.0 percent in 1976. Based on national historic trends, we can assume that Oregon's LFPR was lower than this in years prior to 1976.

Definitions
Civilian Noninstitutional Population: Everyone ages 16 and older who is not on active duty in the Armed Forces or residing in prisons or homes for the aged.
Labor Force: The subset of the civilian noninstitutional population ages 16 and older who is employed or unemployed.
Labor Force Participation Rate (LFPR): The percentage of the population ages 16 and older who is employed or unemployed. Calculated by dividing the labor force by the civilian noninstituational population. 
Oregon's Trends Are Not Unique
 
The story of declining labor force participation rates is not unique to Oregon. Both Oregon and the U.S. have reversed the long-term trend of increasing labor force participation that occurred up until the late 1990s (Graph 1). Oregon's participation rate followed national trends but was consistently higher than the U.S. until about a decade ago. After peaking in the late 1990s, Oregon's LFPR began to fall. Following a steep decline between 1998 and 2004, Oregon's rate has tracked closely with the U.S. ever since.

Graph 1
Oreogn follows the long-term U.S. trends
Three Major Reasons for the Labor Force Participation Rate Decline
 
Aging Workforce

As the Baby Boom Generation ages, they are moving out of the "prime" working years (ages 25 to 54) and entering an age group where labor force participation rates decline significantly. Even though the participation rate among Oregon's older population is increasing, this age group still has lower participation rates than the prime working age group. As the older age group makes up a larger share of the population, overall participation rates fall. Roughly half of the decline in Oregon's labor force participation rate since 2000 is due to the aging of the workforce. This trend is expected to continue as Oregon's population continues to age.

Younger Workers' Declining Participation

The labor force participation rate among Oregon's youth and young adults (ages 16 to 24) has been falling for more than two decades, with the sharpest decline among teenagers. There are two main reasons: a growing number of adults working in jobs historically held for teens; and increasing emphasis on school and college. More than one-quarter of the decline in Oregon's overall LFPR since 2000 can be explained by the falling LFPR among Oregon's youth.

Results of the Great Recession

In the early stages of the Great Recession, the male-dominated construction and manufacturing industries experienced particularly large job losses. As a result, Oregon's LFPR of men declined. The LFPR of women in Oregon started a sharp decline in 2011. Part of this is due to more recent job losses in female-dominated sectors, notably local government education.

Putting Today's Labor Force Participation Rate in Context
 
The labor force participation rate is calculated by dividing the number of employed and unemployed by the civilian noninstitutional population ages 16 and older (Figure 1). Fewer numbers of employed and unemployed puts downward pressure on the participation rate, as does a growing population.

For the overall population, Oregon's number of employed and unemployed fell in 2012 while the population grew, lowering the participation rate to 63.4 percent.

Labor force participation rates are impacted by a number of factors. Demographic trends and changes in cultural trends have produced gradual, long-term changes in labor force participation.

Participation rates vary by race, ethnicity, gender, and age. As Oregon's population shifts and demographic groups comprise a larger or smaller share of the total population, these changes impact overall LFPR. In addition, demographic groups can change their labor force participation over time.

Changes in the business cycle also affect labor force participation rates. During an economic slowdown, unemployed workers may choose to temporarily drop out of the labor force. Some may be discouraged due to a lack of job opportunities in the current labor market. Others may take the opportunity to further their education and learn new job skills. At the other end of the spectrum, during times of rapid employment growth and low unemployment rates such as Oregon experienced in the 1990s, qualified workers can be in very high demand. This can entice people who would normally be outside of the labor market to seek employment.

Historically, the effects of business cycles on the LFPR have been relatively small compared with long-term demographic and cultural changes. That said, economic contractions of the magnitude Oregon and the U.S. experienced during The Great Recession are rare, and thus it is difficult to find appropriate historic comparisons.

Figure 1
Participation Rate =   Employed + Unemployed
  Civilian Noninstitutional Population
In 2012, 63.4% =   1,792,000 + 171,000
  3,097,000
Other Factors Can Affect Labor Force Participation
 
Other factors can affect labor force participation rates in addition to the demographic trends and general economic conditions. However, as they fall outside the scope of the data used in this report, some of the possible factors are noted here.

Productivity improvements in everyday activities impact work and on-the-job productivity. Labor productivity, as measured by output per worker, steadily increased over the years. On average, U.S. workers produced 38 percent more output per hour in 2012 than workers did in 1998, the peak of Oregon's labor force participation. In other words, the economy can produce more goods and services using fewer workers. Those workers will stay employed only as long as demand for products and services continue to increase.

Technological advances can also reduce the demand for some goods or services. For example, 10 years ago a consumer may have purchased a cell phone, camera, GPS unit, and MP3 player separately. Four items, each of which required workers to manufacture, market, sell, and support the product back then can be found in just one smartphone today. The smartphone (or computer or tablet) can take pictures, replacing some film manufacturers and processors; access local news online, replacing some newspaper delivery workers and paper manufacturers; and stream movies, replacing some video rental clerks. This begs the question: can today's economy satisfy consumer needs with fewer people working?

Another consideration is the incentive that people have when deciding whether to join or stay in the labor force. The more a person can purchase with an hour's worth of work, the more likely they will take or look for a job. Recent wage increases may not have provided enough incentive to bring more people into the labor force. Adjusted for price increases in the goods and services that workers typically consume, the average wage in Oregon fell $0.57 per hour between 2007 and 2012, while the average U.S. wage increased just $0.13 per hour.

Potential Impacts
 
The effect on the economy of fewer people participating in the labor force is difficult to predict. However, a few potential impacts are worth mentioning.

  • Falling labor force participation means there are fewer workers supporting the population. This can hinder other measures of economic prosperity, such as per capita personal income (PCPI). Since PCPI is income measured against the total population, any person working, even at below average wages, helps to increase the PCPI. Falling participation rates could translate into stagnant or falling PCPI.

  • Falling participation rates among the younger age groups delay their ability to gain on-the-job training and experience. The tendency to not participate could remain with the cohort as they age. This lack of experience could be a hindrance as young people move into what should be ages of increased participation.

  • Falling participation rates are not expected to lead to wide-ranging worker shortages. Regions and industries with a large proportion of older workers may face a relative shortage of workers as more baby boomers reach retirement age. Statewide, there are enough younger people and their participation rates are far enough below historic averages that there should be enough replacement workers if they are given appropriate training and offered sufficient job opportunities.

This article is an excerpt from the Oregon Employment Department's special report Oregon's Falling Labor Force Participation: A Story of Baby Boomers, Youth, and the Great Recession. The full report is available online at www.QualityInfo.org/pubs/lfpr.pdf.