An Urban's Rural View

You'd never guess how important the labor force participation rate is from the way the government reports it. The Bureau of Labor Statistics all but buries the statistic in its monthly report on employment and unemployment. In the BLS report for April, it wasn't mentioned until the seventh paragraph. (https://www.bls.gov/…)

Yet the continuing lows in the labor force participation rate underpin a hugely consequential development in the economy: labor shortages. For many farmers, labor has been hard to find for years. Now, economy-wide labor shortages have contributed to supply-chain bottlenecks, helped fuel inflation and given employees more power in dealings with employers.

Owing in part to these shortages, annual wage increases are now averaging between 5% and 6%. Shortages also help explain the rise in working remotely. They are even partly responsible for the increasing tendency of CEOs to take stances on political issues. In many cases, the boss is reacting to pressure from his or her newly empowered employees.

The statistic underlying these changes, the labor force participation rate, is the percentage of the working-age population that's either employed or looking for work. It plummeted during COVID, falling in April 2020 to 60.2% from 63.4% the previous month. It's back to 62.2% in the latest report but still well below where it was pre-pandemic. COVID-19 drove workers from the labor force, and millions of them have not returned. (https://www.bls.gov/…)

It is, to be sure, theoretically possible to have labor shortages when labor force participation is high. But that's not what's happening now. Today, jobs are going begging, yet large numbers of working-age Americans are not seeking employment. They're remaining outside of the labor force.

According to the BLS, March ended with a record 11.5 million job openings -- nearly two jobs for every American classified as unemployed. You might think this strong demand for labor would tempt many people back into the labor force, and it has, but it clearly hasn't tempted enough of them.

COVID isn't, however, the only cause of low labor-force participation. It's been slowly but steadily declining for decades. In April 2002, for example, it stood at 66.7%, 5.5 percentage points higher than in April 2022. (https://www.bls.gov/…)

A statistician for the U.S. Census Bureau offers a plausible explanation for this longer-term decline: The baby boomers are reaching retirement age. The boomers, people like me who were born between 1946 and 1964, constitute more than a fifth of the population, a large enough bloc that merely by reaching the time of life when most people don't work, we lowered the overall labor force participation rate.

https://www.census.gov/…

This happened, according to the statistician, David Howard, even though the boomers' own participation rate actually increased. Between 2010 and 2019, the labor force participation rate for people aged 65 to 74 rose to 26.8% from 24.8%. Indeed, the rate for every age category rose. Still, the boomers' rate, even with the increase, was low enough that the overall labor force participation rate fell to 63.6% in 2019 from 64.4% in 2010.

Over time, the forces beating down the labor force participation rate should wane in strength. Sooner or later, experts say, almost everyone will have had COVID, which should mean fewer people staying home for fear of contracting it. Eventually, there will be more boomers dying than reaching retirement age. The weakening of these forces will attenuate the labor shortages.

Or the shortages might disappear sooner, for low labor force participation isn't their only cause. Labor is also short because demand for it is so strong. A recession would take some of the wind out of that sail. With the Federal Reserve hiking interest rates to combat inflation, the odds of a recession are rising. Yet even in a recession, the effects of low labor force participation could linger.

The general economy and the farm economy run on different tracks. The labor shortages they experience differ. Labor-intensive jobs like those on offer in agriculture are not at the top of many job seekers' wish lists. Rural America's population is declining. (https://www.businessinsider.com/…) Immigration policy has as much to do with the ag labor supply as demographics.

The labor force participation rate and resulting labor shortages probably have a bigger impact on the general economy. But agriculture isn't exempt from macro trends like labor shortages and wage-price spirals. No one should be surprised to see wages for farm labor rising.

Urban Lehner can be reached at urbanize@gmail.com

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