There Are Now 8.6 Million Missing American Workers

Everyone knows how unemployment surged through the roof. In a span of two weeks, 10 million people claimed filed for unemployment benefits. The scale is unimaginable. Look at the chart.

But what is less publicized is that the Civilian Labor Force Participation Rate (LFPR) dropped by 0.70% in one month, from 63.4% in February 2020 to just 62.7% in March 2020. So, over 1.6 million people dropped off from the labor force and have gone missing.

There are now 8.6 million people missing from the labor force since the Great Recession began in December 2007 because the LFPR dropped from 66.0% pre-recession to a current 62.7% today.

We are now back to August 2018 levels. This figure reflects only the 3.0 million people that became unemployed in the last week of March 2020. In the first week of April 2020, 6.6 million more people became unemployed, which will lead to further and bigger drops in the Civilian Labor Force Participation Rate for April.

Who Are the Missing American Workers?

Last year, we estimated that there were almost 8 million workers missing from the labor force. Because of job growth, that number is down slightly to 7.4 million.

With the exception of DC and MA, most states have not recovered their pre-recession Labor Force Participation Rates (LFPR).

Prime Age Workers (those aged 25 to 54) are within a hair's breadth of their pre-recession LFPRs, indicating that labor markets may start to tighten very soon. However, wage inflation may be muted for the time being. Why? There are huge pools of labor waiting to take up the slack, particularly in the 20-24 and teenage (16 to 19) age groups. Their LFPRs are still significantly below their pre-recession peaks. The oldest age bracket (55+) actually have a higher participation rates post-recession than pre-recession, indicating that many of them are not ready to retire and/or are working part-time jobs. All these factors serve to suppress wage inflation.

In terms of absolute numbers, there are at least 1.5 million young workers missing from the labor force, plus another 1.3 million older workers hanging on to the labor force.

It would take several more years of sustained job growth to reduce this labor slack.

Unemployment is Low But Wage Inflation is Low Too. Which States Have the Tightest Labor Markets?

Last month, the unemployment rate was an astounding 3.7% - a rate not seen since September 1969.

But for most of the last decade, wage inflation has been low to almost non-existent. Only recently have wages started to creep up.

One reason? Both the Civilian Labor Force Participation Rates (LFPR) and Civilian Employment to Population Ratios (EPR) have yet to reach their pre-recession peak in 2007 and their absolute peak in 2000, during the height of the dotcom bubble.

The gaps are substantial, involving millions of missing workers. For instance, if last month's LFPR were 65.70% (2007 pre-recession peak) instead of an actual 63.20%, there would be 6.5 million more workers counted in the labor force today.

If we had posted an EPR of 63.00% (2007 peak) instead of the current 60.90%, there would be 5.6 million more workers employed today.

Instead, all those workers have gone missing from the labor force. One reason why wage inflation has not been stronger is that all these missing workers are slowly starting to come back to the labor force and kept a lid on wage inflation.

But that is starting to change. Some states have reached, if not surpassed, their pre-recession LFPRs and EPRs and are starting to experience a shortage of workers.Where are those shortages? DC and Massachussets come to mind (in green). Thirteen other states (in yellow) are getting close, with less than 2% of their civilian non-institutional populations (CINP) labeled as missing. Sadly, five states (in red) have more than 5% of their workers categorized as missing from the labor force.

In terms of EPR, DC and MA have actual shortages (in green) while six other states have less than 2% of their CINPs categorized as missing (in yellow). Seven states have more than 5% of their CINPs categorized as missing.

If you add the percentage of missing workers to the state's unemployment rate, we get a closer picture of where the true unemployment rates lie. Again, DC and MA (in green) have very low true unemployment rates, while four other states (in yellow) have true unemployment rates of less than 5%. Seven states (in red) have true unemployment rates of 12% or more of their CINPs.

Where is the US Labor Market Slack and Where is it Tight?

In our last post, we explained why there has been surprisingly little wage inflation in the USA despite the persistence of a historically low unemployment rate. The simple reason for low wage inflation. There are around 8 million missing workers who dropped off the labor force.

In this post, we are trying to map out where those missing workers are by state using the pre-recession peaks in the Labor Force Participation Rate (LFPR) and the Employment to Population Ratio (EPR).

In terms of absolute numbers, California, Florida, and Texas have the highest number of missing workers. The states with lowest number of missing workers are District of Columbia, Massachussets, North Dakota, and Vermont.

In relative terms, the results are very different. At 6.75%, New Mexico has the highest percentage of missing worker relative to its Civilian Noninstitutional Population (CNIP). Neighboring New Mexico has the next highest percentage, 6.46%, closely followed by Wyoming at 6.26%.

The tightest labor markets are the District of Columbia with a shortage of 1.82% of its CNIP. Massachussets also suffers from a shortage of workers: 0.61% of CNIP. Wisconsin is next with an excess number of workers that amounts to 1.03% of its CNIP.

A similar dynamic plays out using the pre-recession Employment to Population Ratio.

Once again, California, Florida, and Texas have the highest absolute numbers of missing workers. On the flip side, both Massachussets and the District of Columbia have a shortage of workers. North Dakota and Vermont have a miniscule amount of missing workers.

Relative to their CNIPs, Nevada (6.33%), New Mexico (5.62%), and Wyoming (5.50%) have the highest percentages of missing workers. The District of Columbia has an acute shortage of workers (-2.28%). Massachussets is just about balanced, and Maryland's missing workers amount to 1.10% of its CNIP.

 Related Post: Why There Will Be Little to No Wage Inflation: There are 8 Million Missing American Workers