In his state of the state address last month, Gov. Tony Evers boasted about Wisconsin’s low unemployment rate. What the Democrat failed to mention is Wisconsin’s dismal labor participation rate, a number that underscores one of the biggest economic challenges facing Badger State businesses.
“Our labor force participation rate is worse today than it was at the bottom point of COVID when our economy was shut down,” said Scott Manley, Executive Vice President of Government Relations for Wisconsin Manufacturers & Commerce.
The rate was at 64.7 percent in December, according to the most recent data available from the Federal Reserve Bank of St. Louis. That’s down a point and a half from the 66.2 percent labor force participation rate in May 2020, when Wisconsin’s economy was bleeding jobs in the opening months of the pandemic. The Evers administration had issued stay-at-home orders locking down the state, closing so-called non-essential businesses and sending tens of thousands of workers to the unemployment line.
Nearly three years after the COVID-19 outbreak hit Wisconsin, the state’s labor force participation rate is a full point lower than it was in April 2020 (65.8%), when 345,000 people were locked out of work.
The U.S. labor force participation rate also dropped a tenth of a point in December, to 61 percent, as businesses continued to struggle to find enough workers.
While the U.S. unemployment rate has recovered from its pandemic spike of 14.7 percent in April 2020, many workers continue to sit on the sidelines. Labor experts say recurring stimulus checks, increased unemployment benefits and other federal assistance programs have shown to be a disincentive to work.
Declining labor force participation has been a problem for years, but it was punctuated during the pandemic.
“… [M]any would-be workers are voluntarily disconnected from work, and government programs and policies have likely made work less attractive for these Americans,” states a report last year from the Joint Economic Committee Republicans’ Social Capital Project.
Some of the report’s key findings:
- The U.S. has witnessed an unprecedented rise in disconnected prime-age workers over time. For men, this trend goes back half a century, with their labor force participation rate falling from over 97 percent in 1955 to 89 percent before the pandemic. For women, receding workforce participation began in the last two decades.
- Many popular explanations blame declining wages, technological change, and international trade. However, key evidence indicates these forces have not made it significantly more difficult for workers to find well-paying jobs.
- Examining worker preferences and their incentives provides a better explanation. The decline in prime-age labor force participation has been mostly voluntary. Only 12 percent of inactive, prime-age, able-bodied men said they wanted a job or were open to work. Among men who are inactive for reasons other than disability, retirement, education, or homemaking, 41 percent personally receive government assistance.
- Government policies may be tipping the scales away from work. A growing number of Americans receive government assistance, which has been shown to lower employment. Regulations can also disproportionately harm low-skilled workers by creating unnecessary barriers to economic opportunity.
There are other factors keeping potential workers out of the workforce, to be sure, such as wage issues. But the competition for a dwindling supply of workers and historic inflation has driven wages to historic highs.
Wisconsin businesses say the workforce shortage remains a top concern. In its most recent Wisconsin Employer Survey, Wisconsin Manufacturers and Commerce found 85 percent of businesses are struggling to hire. One third of businesses plan to increase wages by more than 4 percent in 2023, and 84 percent plan to increase wages by 3 percent or more.
“Wisconsin employers continue to be concerned about the state of the Wisconsin and U.S. economies,” said WMC President & CEO Kurt R. Bauer. “High inflation, a persistent workforce shortage and a stagnating business climate are inhibiting economic growth.”
Despite low unemployment and record state budget surpluses, the worker shortage doesn’t bode well for Wisconsin’s economy.
“The Wisconsin economy faces a strange dichotomy, however,” Bauer said. “There are still not enough Wisconsinites to fill available jobs, even as we are facing an economic downturn.”
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M.D. Kittle is the National Political Editor for The Star News Network.