Dan Walters

Dan Walters: Declining labor-force participation bodes ill for California economy

Dan Walters
Dan Walters

How’s this for a statistical coincidence?

In December, California’s “seasonally adjusted” unemployment rate was 8.3 percent, reflecting its slow recovery from its worst postwar recession that had driven the jobless rate as high as 12.9 percent four years earlier.

Twenty years earlier, in December 1993, the state’s unemployment rate was 8.7 percent, reflecting its slow recovery from a recession that had seen unemployment topping out at 10.4 percent.

Over that 20-year period, California’s population increased by 22 percent, while its civilian labor force increased by 22.2 percent and employment increased by 22.3 percent.

So in a sense, things hadn’t changed a great deal. But in fact they had changed a lot, because during that two-decade-long stretch, the state had seen multiple economic ups and downs. As Gov. Jerry Brown put it in his recent State of the State address, “boom and bust is our lot.”

Counterintuitively, however, one important economic indicator remained constant during these ups and downs, a constant decline in the “labor-force participation rate” – the percentage of working-age residents – 16 to 64 – who are either working or looking for work.

The fact that labor-force growth has tracked almost perfectly with population growth, as noted earlier, would seem to belie that trend. But the state Employment Development Department has charted a steady decline in the participation rate to a current 62.2 percent, the lowest since 1978.

The aging of California’s population and a decreasing birthrate mean that relatively, there are fewer children and more adults, especially baby boomers in their 40s, 50s and 60s, but a steadily declining portion of those adults are either working or looking for work.

Baby boomers taking early retirement account for some of the participation decline – which is also a national phenomenon. But as Michael Bernick, a former EDD director, points out, other factors include middle-aged workers unable to find good jobs in a tech-dominated economy and dropping out.

They contribute to a sharp rise in those claiming Social Security disability payments before reaching retirement age. Meanwhile, the Congressional Budget Office predicts that the availability of federally subsidized health care will drive labor-force participation even lower.

Another disturbing aspect is the underemployment of many who remain in the workforce. The U.S. Bureau of Labor Statistics regularly calculates not only the unemployed but those “marginally attached” to the labor force and those unwillingly working part time.

The current “U-6” rate for California is 17.8 percent of its labor force, more than twice the official unemployment rate.

The decline in Californians who are working productively or want to work bodes ill for our economic future.