State Employment Recovered Unevenly from Last Recession

Before the COVID-19 pandemic upended the economy, much of the country had enjoyed years of slow but steady job growth over the longest recovery on record. The U.S. employment rate for prime-working-age adults finally recovered in 2019 from losses in the Great Recession. But rates in about half of states still fell short on the eve of the current downturn, leaving some at an economic disadvantage.

Nationally, an average of 80% of Americans in their prime working years were employed in 2019. For the first time, that slightly surpassed the annual rate in 2007 just before the last recession, after dipping to as low as about 75% between 2009 and 2011. The prime age employment-to-population ratio, a key economic indicator, represents the percentage of adults ages 25 to 54 who hold jobs. It provides a different perspective on the jobs situation from the better-known unemployment rate, which last year was at its lowest level in half a century.

With the recession triggered this year by the coronavirus, the workforce now may have to dig out of an even deeper hole than after the last downturn. Since the pandemic began, the employment-to-population ratio nationally fell to its lowest monthly levels since the 1970s in April and May, before climbing slightly to 73.8% in July, which was still far lower than at any point since the Great Recession. The new downturn and potentially lengthy recovery carry major fiscal implications for states. Lower employment means less tax revenue for state governments and greater demand for safety-net services.

States’ economies recovered at different paces after the last recession. On the verge of the pandemic, average prime-age employment rates for the 12 months of 2019 were still below pre-Great Recession levels in 24 states. Because the rate is an important measure of an economy’s ability to create employment, these states may have begun the new recession with weaker economic conditions than others.

New Mexico’s estimated employment-to-population ratio of 74.5% was down 4.6 percentage points from 79.1% in 2007—the largest decline nationally—as multiple areas of the state’s economy struggled, particularly construction and manufacturing. This means that for every 100 prime-working-age New Mexicans in 2007, nearly five fewer were employed in 2019. The decrease in the ratio is statistically significant, indicating that the 2019 rate was clearly below pre-recession levels.

Among 26 states whose rates had recovered by last year, gains in only three—Massachusetts, Michigan, and New Jersey—were statistically significant. In 15 of those states, rates were less than 1 percentage point above 2007 levels.

The share of Michiganders between ages 25 and 54 with jobs rose more than in any state over the 12-year period, climbing from 76% to 79.5%. That was true even though employment for the age group declined since 2007. Michigan had been shedding jobs for nearly a decade prior to the Great Recession, so it had more room for improvement than other states that in 2007 were near the peaks of their economic cycles.

Michigan also illustrates how prime-age employment ratios are affected by not only employment levels, but also changes in population. The state’s population of 25- to 54-year-olds declined much faster than the number of workers in that age group, causing the share of prime-age adults with jobs to increase.

Similarly, Northeastern states experienced the largest upticks in their employment-to-population ratios of any region, not necessarily because they had more prime-age adults on the job but largely as a result of experiencing the steepest population losses on average. Western states’ rates lagged other regions and declined on average, in part because steady population growth outpaced job gains. Multiple factors influence population changes, such as migration—both between states and from abroad—and demographic trends. Baby Boomers—once a vast segment of the workforce—are no longer of prime working age, for example.

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  • Most states experienced a dip in prime-age employment-to-population ratios immediately or soon after the onset of the Great Recession. Although the 18-month contraction of the economy officially ended in June 2009, most states didn’t record their lowest ratios for another one to three years.
  • Once employment picked up again, states’ ratios generally climbed, with some ups and downs along the way. But a few energy states followed more of a downward trajectory, particularly Alaska and North Dakota.
  • Where rates had rebounded from their losses, the recovery took many years. As recently as in 2016, only four states had surpassed their pre-recession rates, (compared with 26 states at the end of 2019), and none of those gains were considered statistically significant.
  • Looking back further, the U.S. prime-age employment-to-population ratio leading up to the Great Recession never fully recovered from the previous recession. Nationally, the estimated ratio peaked at 81.9% around 2000.

2019 state highlights

A state-by-state comparison of the difference in the employment-to-population ratios for 25- to 54-year-olds between 2007 and 2019 shows:

  • States experiencing the top gains from pre-Great Recession rates were: Michigan (3.4 points); New Jersey (2.4 points); Massachusetts (2.2 points); West Virginia (2 points); Connecticut (1.9 points); Maine (1.5 points); Maryland (1.4 points); and Colorado and New Hampshire (both 1.3 points). The increase was statistically significant in only Massachusetts, Michigan, and New Jersey.
  • States furthest below their 2007 employment rates were: New Mexico (-4.6 points), Alaska (-3.2 points), South Dakota (-2.8 points), Hawaii (-2.7 points), and Idaho (-2.4 points).
  • Employment rates were lower by a statistically significant amount in only two states—New Mexico and Florida—down from 37 in 2012, shortly after Pew’s analysis of the data began. 
  • Estimated prime age ratios surpassed pre-Great Recession levels for the first time last year in seven states: Arizona, California, Illinois, Maryland, Oklahoma, Tennessee, and West Virginia. 
  • Last year, 18 states and the District of Columbia recorded their highest annual employment rates since before the last recession.

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 health care coverage and other safety-net assistance, 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 higher 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.

Download the data to see individual state trends. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.

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Fiscal 50: State Trends and Analysis, an interactive resource from The Pew Charitable Trusts, allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health.