Maine’s unemployment rate dropped to below 3 percent for January, which would be stellar economic news for the state but for the labor force participation rate: 58 percent.
The labor force participation rate is an official measure of what percentage of Maine’s working age population is actually employed or actively looking for work.
The rate in Maine is currently the lowest labor force participation rate ever measured with the exception of August 2020, when the rate was 57.9 percent.
Data from the St. Louis Federal Reserve shows Maine’s labor force participation rate only dipped under 60 percent one other time: February and March of 1978.
In the months prior to the 2020 government lockdowns, Maine’s labor force participation rate was around 62 percent.
The rate had been declining for years — from 68.8 percent as of January 2000.
Over the past two decades, Maine’s labor force participation rate was usually higher than the national average. Not any more.
Currently the national average is 62.4 percent — far higher than Maine’s. And while both the Maine rate and the national rate took a hit during the lockdowns, the national rate has recovered much more of those losses than the Maine rate.
In January, Maine’s Department of Labor (DOL) released an analysis of the contradictory trends observed in the unemployment and labor force participation rates.
“In the last 2.5 years there has been a sharp divide between jobs and employment estimates derived from the two surveys, especially in the second half of 2022. Payroll jobs estimates indicate that there were 5,300 more nonfarm jobs in December 2022 than three years earlier; labor force and employment estimates indicate that there were 32,100 fewer people in the labor force and 37,200 fewer that were employed in December than three years earlier.”
But what’s the explanation? What’s causing this trend?
DOL’s potential theories include: changes in agricultural and self-employment trends, changes in the number of people crossing a state border to work, and changes in the number of people working multiple jobs.
But the department admits those trends are probably too minor to cause the significant divergence.
Instead the DOL economists conclude that the traditional method of measuring labor force participation probably isn’t working anymore. So rather than use the methodology in place for several decades, they come up with an alternative measurement of workforce participation
From the report:
“As nonfarm job estimates have historically been more reliable, gauging the ratio of jobs to the population likely provides a better indicator of employment rates in recent months. As demonstrated in the second chart on this page, the alternative employment rate based on the average differential between nonfarm jobs and employment rates provides a close proxy to official employment rates through the middle of 2020. After that there was a sharp divergence. This indicates that employment rates (and by extension labor force participation rates and employment and labor force levels) have been substantially understated for the last 30 months, especially in the latter part of 2022.”
In other words, the department is claiming that the labor force participation rate isn’t at historic lows, it’s just a broken measurement. Using the alternative method, labor force participation is actually much healthier.
[RELATED: MaineCare Expansion Tops 400k as State Begins Unwind…]
The Foundation for Government Accountability has another theory: Generous unemployment and welfare benefits are competing with employers and incentivizing many working-age Mainers to stay on the sidelines.
Nationally, the labor force participation rate has declined over the past two decades at the same time enrollment in various government benefit programs has increased.
This month, the expansion of Medicaid eligibility the federal government encouraged because of the pandemic will begin to unwind.
That means thousands of able-bodied childless adults will no longer be allowed to use MaineCare.
If Maine’s labor force participation rate begins to recover at the same time MaineCare eligibility shrinks, then you’ll have a strong piece of evidence to support the theory that generous benefit programs can keep workers on the sidelines.
