America’s labor force participation rate has fallen for two decades, with large drops during the Great Recession and the COVID-19 pandemic. Alabama’s rate trails the national average, potentially hamstringing our economy.
Labor force participation involves either working or actively looking for work (the definition of unemployment) and scaled by population age 16 and over. Alabama’s August rate was 57.2%, versus a 62.4 national rate.
Participation rates vary widely across states. Three states topped 69% led by Nebraska at 69.9. At the other end, two states were below 56%, with West Virginia last at 55.2%. The variation across states contrasts with the generally small movement in the national rate, less than one percentage point in seven years before the pandemic.
Alabama’s unemployment rate is 2.6%. Basically, everyone interested in working is working. We would need workers from out-of-state to fill new jobs to grow our economy if participation does not increase.
Alabama ranks 48th among states in per capita personal income (PCPI), which is closely connected to low work participation. The bottom six states in PCPI all have participation rates below 58 %. The two lowest-income states have the lowest participation rates. A participation rate at the national average (at the high-end 69% figure) would put 200,000 (500,000) more Alabamians in the market, enough to fill currently vacant positions. Personal income per worker is $120,000, so higher participation could boost PCPI 10% or more.
Participation by men ages 25 to 54 highlights the national decline in working. Ninety-eight percent of men 25-54 participated in the 1950s versus 87% in 2021. Alabama’s 85% rate ranks 42nd nationally; prime working-age men sitting on the sidelines contributes to but is not the sole driver of our work participation.
Our current labor force participation is not necessarily a problem. We all face choices between working and other life activities. People will turn down overtime, get off the corporate ladder, retire early, or stop working for perfectly sound reasons. Every economic statistic aggregates the choices of thousands of individuals. A problem exists if people are not working for fixable reasons or if government policies push people out of work.
A high proportion of retirees provides one explanation for low participation. Population over 65 correlates with lower work participation across states. But Alabama only ranks 22nd in population over 65 at 16.5%. States with larger elderly populations than Alabama have higher participation rates, including Florida with the largest over-65 population at 59.5% and Iowa with a slightly older population and a 10 percentage point higher participation (67.7).
Disability provides another possible explanation, as Alabama’s rate exceeds the national average by several percentage points and disability clearly reduces work participation. But disability is an incomplete explanation. Social Security disability benefits seem to experts too modest to induce persons capable of work to choose disability.
Welfare “cliffs” where increased earnings disqualify people for government assistance also affect work participation. The loss of benefits functions like high tax rates, and research documents effective tax rates over 100%. Alabama’s cliffs must be worse than other states to explain our low work participation. This seems unlikely given Alabama’s low benefit levels for two major forms of assistance, Temporary Assistance for Needy Families and Medicaid.
Perhaps many Alabamians work simply off the books. The 1996 bipartisan welfare reform dramatically reduced caseloads partly because work requirements identified fraud. Recipients with good-paying jobs would not show up for job training. Again, Alabama’s informal sector must be larger than other states to explain our low participation rate.
The list of possible explanations goes on and includes opioid addiction, childcare, and public transportation. Our participation deviates from the national average by around 200,000 persons, so dozens of factors likely contribute. Regardless of the causes, our economic prospects are limited unless more Alabamians decide to work.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to [email protected].
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