Florida TaxWatch Economic Commentary
The unemployment rate is not the whole story
Florida's unemployment rate of 5 percent is good news, but not the whole story. An underlying factor that determines whether the job market is truly positive is the labor force participation rate (LFPR).
In the years since the Great Recession, Florida’s economy has grown at a steady rate. The state’s annual unemployment rate (which measures the number of people not employed, but actively seeking employment as a percentage of the labor force)1 was 5.4 percent in 2015, great news for Florida’s job market considering the state’s unemployment rate was more than double that at 11.1 percent just five years ago.2 While unemployment figures are used by the media and politicians across the nation to paint a picture of the job market, the figures can be somewhat misleading when used without the proper context.
One key metric that is widely overlooked in the discussion is the labor force participation rate (LFPR), which measures the percentage of the total population aged 16 and above who are currently employed or are unemployed and actively seeking employment.3 While overlooked, the LFPR is one of the most important metrics to understanding the overall landscape of the job markets.
Why it is important to examine the labor force participation rate
To give an example of the overall importance of the LFPR, one can examine its change from 2010 to 2015. As previously stated, the unemployment rate dropped by more than 50 percent during this timespan. On the surface, many would believe the drop in unemployment was due to the fact that more jobs were created and individuals were able to get back to work, and to some degree that is true; however, a look at the LFPR also sheds some light on the story.
While unemployment was dropping over that timespan, so was the labor force participation rate. From 2010 to 2015, the LFPR dropped from 61.6 percent to 59.3 percent, the lowest rate since 1983.4 While the rate dropped, this does not mean that the number of individuals participating in the work force dropped (it actually rose by roughly 460,000), but that it was not able to keep pace with the growth in population (which grew by approximately 1.35 million people).5
Why the labor force participation rate is dropping
Economists have been debating the reasons behind the drop in the labor force participation rate for many years, as this is a problem that has been experienced not only in Florida, but in states across the nation.6 A common theory cites the change in demographics in recent years, specifically the aging of baby boomers. In 2008, the first wave of baby boomers reached the age of 62, making them eligible for Social Security benefits.7 This theory is especially relevant to the state of Florida, which is known for its elderly population. In fact, forecasts estimate that from 2010-2020, the fastest growing population in Florida—by a wide margin—is the 65 and up age group, expected to make up 37 percent of population growth over that timespan.8 With the increase in retirement-aged individuals, it is likely that the drop in the labor force participation rate will continue.9
1 The labor force does not count those who have retired, full-time students, homemakers, or those who are neither working nor seeking work.
2 Florida TaxWatch Analysis of United States Bureau of Labor Statistics data. Data published as of March 1, 2016.
3 Labor Force Participation as defined by the United States Bureau of Labor Statistics.
4 Florida TaxWatch Analysis of United States Bureau of Labor Statistics data. Data published as of March 1, 2016.
5 Florida TaxWatch Analysis of United States Bureau of Labor Statistics data. Data published as of March 1, 2016.
6 Getting Workers Back Into the Workforce. The PEW Charitable Trust. April 7, 2014.
7 Getting Workers Back Into the Workforce. The PEW Charitable Trust. April 7, 2014.
8 Florida Demographic Estimating Conference. February 2015.
9 Trends In Florida Labor Force Participation. Bureau of Economic and Business Research. February 10, 2016.
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