Prime-Age Employment Rate Is Recovering Unevenly Across States

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Prime-Age Employment Rate Is Recovering Unevenly Across States
Prime-age employment
The Pew Charitable Trusts

Every state’s employment rate among prime-age adults was lower on average over the 12 months through June 2021 compared with the year before the COVID-19 recession. The pandemic left the labor market in disarray even as economic conditions began to improve. Employment rates plummeted in states dependent on the hard-hit leisure and hospitality sector but declined less dramatically in several Great Plains states whose economies were more resilient.

An average of 76.1% of Americans ages 25-54 were employed during most states’ first full fiscal year since the novel coronavirus sparked a two-month recession in 2020 that led to business disruptions and historic job losses. The rate was down from 80% before the pandemic, meaning that for every 100 people of prime working age, about four fewer were employed in fiscal 2021 than in 2019. For state governments, lower employment among residents can translate into less tax revenue, and potentially additional demand for social services.

This key economic indicator—which, unlike the often-cited unemployment rate, captures individuals who are choosing not to pursue employment along with job seekers—reflected several pressures during the initial fiscal year of the recovery. Businesses held back on hiring because of the unknown course of the pandemic, with millions of workers remaining on temporary layoffs. At the same time, the rate at which Americans quit their jobs reached historic highs in spring 2021. Others were reluctant to seek employment or return to work because of health, child care, or other pandemic-related considerations.

Some states suffered far more economic turmoil than others. Nevada and Hawaii recorded the largest declines in prime-age employment rates (-10 and -6.9 percentage points, respectively) when averages over the 12-month recovery period ending in June are compared with 2019. Some of the hardest-hit jobs were those in leisure and hospitality. Casinos, hotels, and other attractions closed or limited operations for months in Nevada. Air travel to tourism-dependent Hawaii ceased nearly completely as the pandemic struck, and still hadn’t fully recovered as of September. Other states with the sharpest rate declines were largely concentrated on the East or West coasts.

The economies of a few Great Plains states proved to be more resilient as they are generally less tied to industries devastated by the pandemic. As of mid-2021, South Dakota posted the smallest decrease of any state in its prime-age employment rate, a 0.9 percentage-point reduction that was not considered statistically significant or clearly below the pre-pandemic level. Unemployment in the state remained relatively low, and several industries, such as construction, recorded slight job gains.

The pandemic hit just as the national prime-age employment-to-population ratio had finally surpassed its pre-Great Recession level in 2019, although rates in 24 states still had not fully recovered. Not long after the pandemic’s arrival, the share of people in their prime working years with a job nationally plummeted to its lowest levels in decades, according to the U.S. Department of Labor’s monthly, seasonally adjusted estimates. Although the initial decline last spring was far more severe than what states experienced even during the Great Recession, the prime-age employment rate has since largely recovered. The estimated national monthly rate climbed to 78.3% in October, suggesting that it had already rebounded by more than three-quarters from its low of 69.6% in April 2020 when the pandemic triggered business closures.

Employment ratios are influenced not only by job losses, but also by population and demographic shifts. The ratio decreases when the number of 25- to 54-year-old workers in a state either declines faster or increases slower than the population for the same age group. Five states (Alaska, Idaho, Kansas, Nebraska, and Montana) posted lower employment-to-population ratios even though they managed to record slight job increases from 2019. That’s because growth in their prime-age population outpaced gains in employment among people in that age bracket.

State highlights

A state-by-state comparison of the percentage point change in annual average employment-to-population ratios for 25- to 54-year-olds between 2019, which was before the pandemic, and the 12-month recovery period ending in June 2021 shows:

  • Prime-age employment rates dropped throughout the country, but the change was statistically significant—or clearly below pre-pandemic levels—in 36 states.
  • After Nevada and Hawaii, the next-largest reductions were in Connecticut (-6.2 percentage points), New Jersey (-6 percentage points), and Maryland (-5.8 percentage points). This means that for every 100 people in this age group, about six fewer had jobs in fiscal 2021 than before the pandemic. Changes were statistically significant.
  • All but two of the 10 states sustaining the largest percentage-point declines—Hawaii and Nevada—were on the East or West coasts.
  • States with the smallest declines were South Dakota (-0.9 percentage points), and Alaska, North Dakota, and Montana (-1 percentage point each). The drops were not considered statistically significant, meaning that the change could have resulted from sampling or other error.
  • During fiscal 2021, adults of prime working age were employed at the lowest rates in New Mexico (70.1%) and Nevada (71.2%), two states with major industries—energy, and leisure and hospitality, respectively—that were pummeled by the pandemic. Mississippi (71.5%) and West Virginia (72%) posted similarly weak rates, although they—along with New Mexico—were already among the nation’s lowest heading into the pandemic. Adults of prime working age were employed at the highest rates in North Dakota (84.7%) and South Dakota (84.3%) during this period.
All States’ Employment Rates Dropped Following COVID-19: Change in share of prime-age adults with jobs, 2019 to FY 2021

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Workers experienced disparate impacts

Stark disparities emerged in how various segments of the workforce weathered the economic downturn. Low-income workers, in particular, struggled to regain a foothold in the economy as they were often employed in industries most upended by the pandemic, such as restaurants and hotels. The same is true of younger workers: The employment-to-population ratio for those in their early 20s fell more sharply than for those in their prime working years, compared with pre-pandemic 2019 levels. Average prime-age employment rates were similarly further below pre-pandemic levels over the 12-month recovery period through mid-2021 for Black (-5.5 percentage points) and Hispanic Americans (-5.2 percentage points) than for Whites of any ethnicity (-3.4 percentage points.)

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

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Data Visualization

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.

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