Employment Rises Closer to Pre-Recession Rates
The U.S. employment rate for adults of prime working age rose in 2016, yet remained clearly lower than in 2007, just before the Great Recession. Reflecting the national trend, the percentage of 25- to 54-year-olds with a job was clearly lower in 16 states.
The U.S. employment-to-population ratio for 25- to 54-year-olds, which measures the share of people in their prime working years who have jobs, averaged 77.9 percent in 2016, up from 77.2 percent in 2015. Despite rising for years, 2016’s prime-age employment rate was still below 2007’s level of 79.9 percent. In the wake of the 2007-09 recession, the employment rate hit lows of about 75 percent.
The difference between the 2007 and 2016 prime-age employment rates means that for every 100 adults in this age group nationwide, two fewer had jobs last year than before the recession. Nationwide, about 2.4 million fewer prime-age adults had jobs in 2016 compared with nine years earlier. Lower employment can mean lower tax revenue for state governments.
The persistent employment-rate gap shows that the labor market still had room for improvement in 2016, even though a better-known measure—unemployment—had fallen to near pre-recession rates. While employment and unemployment rates are related, they measure somewhat different groups. The chief reason that the prime-age employment rate remained lower in 2016 than in 2007 was an increase in the share of people neither working nor looking for work—a group that is not counted in the unemployment rate.
Despite a continuing employment-rate gap among prime-age workers, recent years have seen signs of progress. In 2012, when Pew’s analysis of the data began, 37 states had employment rates that lagged 2007 levels by a statistically significant amount. By 2016, this number had fallen to 16, indicating that fewer states’ employment rates were clearly below pre-recession levels. Most other states last year had rates that were below pre-recession levels, but not by statistically significant amounts. No state’s rate had surpassed 2007 levels by a statistically significant amount.
A state-by-state comparison of the difference in the employment-to-population ratio for 25- to 54-year-olds between 2007 and 2016 shows:
- Among the 16 states with statistically significant differences in their employment rates, the largest difference was in New Mexico. For every 100 prime-working-age New Mexicans, 7.2 fewer were employed.
- Employment rates were lower in an additional 30 states but not by statistically significant amounts, so it is unclear whether their rates had recovered.
- Rates were higher than in 2007 in Michigan (by 0.8 percentage point), Wisconsin (0.6 point), Indiana (0.5 point), and Massachusetts (0.1 point). However, the differences were not statistically significant.
- In 2016, three states—Arizona, Kentucky, and Utah—fell off the list of those with statistically significant differences in their employment rates during the fiscal year that ended in June 2016. This means that their rates in 2016 were probably closer to their pre-recession levels than they were during the last fiscal year.
- One state—South Dakota—joined the list of states with statistically significant declines in their employment rates. Previously, its rates were consistently lower than in 2007, but not by a meaningful margin.
How employment affects state ledgers
Economic conditions, including employment, are major drivers of state finances. Changes in employment rates among adults in their prime working years can affect both sides of a state’s budget ledger.
- Revenue: Paychecks help generate individual income tax dollars and fuel consumer spending, which produces tax revenue from sales and business income.
- Expenditures: People without jobs frequently need more services such as Medicaid and other safety-net programs, which can increase states’ costs.
What is the employment-to-population ratio?
Although unemployment figures receive substantial media attention, many economists also track the employment-to-population ratio because it provides a broader view of labor market conditions. The unemployment rate, for example, excludes people who are not looking for jobs, but the employment rate captures this group in its measurement of population.
Focusing on 25- to 54-year-olds reduces the distortion of employment trends resulting from demographic effects such as older and younger workers’ choices regarding retirement or full-time education.
Another gauge of employment trends is the labor force participation rate. While the employment-to-population ratio tracks the percentage of the population that has jobs, the labor force participation rate measures the percentage that is working or actively looking for work.
A statistically significant decrease or increase indicates a high level of confidence that there was a true change in the employment rate. Changes that are not statistically significant offer less certainty and could be the result of variations in sampling or other methods used to produce employment estimates. Without additional testing for statistical significance, caution should be exercised when comparing changes in employment rates among states.