As Labor Participation Drops, Rethink Your Strategies

By Toni Vranjes

May 9, 2014

In recent years, news reports about overworked employees and discouraged job applicants have received a lot of attention.

Equally important, though, are those who have left the workforce entirely. For a wide variety of reasons, participation in the U.S. labor force is declining — and the effects will be felt far and wide.

Economist Tara Sinclair discussed these workforce trends during the Spring 2014 ERE Conference & Expo in San Diego. The labor market likely will get tighter in coming years, and this should spur recruiters and job seekers to re-evaluate their strategies, according to Sinclair, an economics professor at George Washington University.

Help WantedFor recruiters, one key challenge will be finding ways to draw people back into the labor force, said Sinclair, who is also an economist at Indeed. At the conference, she also urged them to consider “hidden pockets” of talent.

Meanwhile, Sinclair expects many opportunities ahead for job seekers with the right qualifications, she told Revive My Career. They should carefully consider both the career path they’re pursuing, and the types of benefits they’re seeking.

What the Data Indicate

The available economic data have both strengths and flaws, so it’s important to analyze many different types of information, according to Sinclair. In that way, economists try to get a general sense of where the economy is headed.

The key data include:

Monthly Employment Numbers: The nonfarm payroll employment report, provided by the U.S. Labor Department, is usually released on the first Friday of every month. The initial payroll number is an estimate, and the government later revises it.

Although the media often focus on total payroll levels and the unemployment rate, the report also provides a lot of other details. This includes employment data about a wide variety of demographic groups. The report also includes the employment-population ratio and the labor-force participation rate, which are other key measures.

Job Openings and Labor Turnover Survey (JOLTS): This monthly survey examines the number of job openings, new hires, and separations nationwide. The total separations include both voluntary separations, or “quits,” as well as involuntary separations.

The “quits rate” refers to the number of people who quit as a percent of total employment. It measures employees’ willingness or ability to leave their jobs, according to the Labor Department, which conducts the survey.

From 2000 to 2007, the average quits rate was 2.1 percent, Sinclair said at the conference. But then, the Great recession hit in December 2007, and employees as a whole were less inclined to leave their jobs. For the period from 2008 to 2013, the average quits rate was only 1.6 percent.

But it’s ticking back up. The most recent data, for March, show a quits rate of 1.8 percent.

Unemployment Insurance Initial Claims: Every Thursday, the Labor Department releases a report on new claims for unemployment benefits over the past week.

Because the data are volatile, she focuses on the average number from the previous four weeks – known as the “four-week moving average.” This might be the best variable to forecast the direction of the economy, according to Sinclair.

“This gives us a broad sense of how the economy is performing,” she said at the conference.

Fewer than 350,000 new claims – on average over four weeks – indicate a strong labor market, according to Sinclair. Based on this measure, the economy is doing well. In the latest report, the four-week moving average was 324,750.

Employment-Population Ratio: This shows the percentage of the population ages 16 and older that is employed. The percentage was ticking up nicely for a long time, reflecting the impact of Baby Boomers in the workforce and of women joining the labor force in huge numbers, Sinclair said.

Amid the recent recession, though, the employment-population ratio plummeted for a while, and “it’s not really coming back up,” she observed. While some of this reflects people not working because of unemployment, much of it is attributable to people choosing to leave the labor force completely, according to Sinclair.

The employment-population ratio is now stuck at mid-1980s levels, she noted. According to the Labor Department, the current percentage is 58.9 percent.

Labor-Force Participation Rate: Another key measure is the labor-force participation rate – the percentage of the population that is either employed or searching for work. Last October, the participation rate declined to the lowest level since March 1978, falling to 62.8 percent. Since then, it has hovered at or near that level.

The Labor Department projects that the labor-force participation rate will drop even more, to 61.6 percent in 2022, according to a report released in December. The rate is being pushed down by demographic, structural and cyclical factors, the report states.

For instance, the participation rate for young people is declining, primarily because of an increase in school attendance, the Labor Department noted in a report published in January.

Meanwhile, many Baby Boomers are retiring. Although the participation rates of older workers are increasing, those rates are still much lower than those of 25-to-54 year olds, according to the department’s analysis.

In addition, the participation rate of women peaked 15 years ago, and it’s been on a downward trend since then.

Another factor has been the state of the economy. The Labor Department cites the jobless recovery of the 2001 recession, along with the recession that started in December 2007.

Sources of Talent

So how can employers draw some of these people back into the labor force?

“My view is that we need a combination of training to help this group be prepared for the jobs in the modern economy combined with more flexible employment arrangements to allow them to balance other commitments that are currently keeping them out of the labor force,” Sinclair said in an e-mail.

As recruiters seek job candidates, they also should be aware of the many “hidden pockets of talent,” she said at the conference.

Those sources include:

Career Changers: In research that Sinclair recently conducted for the Indeed Hiring Lab, she found that more than half of employed job seekers are searching for careers outside of their current occupation. As the labor market tightens, recruiters should consider skilled people who are seeking to change their career path, she said.

Flexible Workers: “Time and flexibility” are extremely important to 65 percent of all workers, Sinclair said, citing a study by Spherion. Flexibility is especially appealing to Millennials, and to the highly educated as a group, she added. For instance, “part time” is one of the top ten search terms used by people working in STEM (science, technology, engineering and math) occupations, according to research by Indeed Hiring Lab.

Long-Term Unemployed: Another source of talent: people who have been jobless for 27 weeks or longer, referred to as the “long-term unemployed.” As of April, 3.5 million people fell into that category.

Many studies have highlighted the stigma that this group faces, but new research by Evolv finds that there’s no basis for the discrimination. After analyzing data involving 20,000 workers, the company concluded that the long-term jobless perform no worse than those who aren’t in this category. In some cases, the performance is even better.

The plight of this group is receiving more attention. In one major initiative, the White House recently partnered with the private sector to spur hiring of the long-term unemployed.

Movers: Another group to target: those who are open to moving for new employment. For instance, surveys of Millennials show that 80 percent are willing to move for their first job, according to Sinclair.

Meanwhile, keep in mind others who also might want to move. As aging Baby Boomers are leaving the labor force, their children often are seeking ways to move closer to them, Sinclair said.

College Students and New Graduates: By 2022, about 24 million people will be enrolled in higher education, according to projections cited by Sinclair.

At the conference, she noted that “people are not working while they’re in college as much as they used to.” And employers could benefit by trying to recruit college students. One approach is to start with an internship during school, and if that works out, move to full-time employment later.

“I know that Millennials get a bad rap,” she said at the conference. “But having worked with them a lot for the last few years, they’re energetic, they want to work, and they’re not necessarily always motivated by wages. They’re motivated by feeling like you’re investing in them.”

Message for Job Seekers

Job candidates with in-demand skills will have substantial bargaining power in the near future, Sinclair told Revive My Career.

“As the labor force participation remains relatively low, competition for jobs is not as high as we may expect at this point in our nation’s economic recovery,” she said in an e-mail.

“However, jobseekers should keep in mind that bargaining power does not always come in the form of higher wages – other important benefits such as working from home should be considered,” she added.

Sinclair also emphasizes that economic recoveries are a good time to consider a career change.

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