Jefferson Policy Journal

The jobless rate is at historic lows and certainly is an important economic barometer.
But looking at the labor force participation rate might be a more telling story.
That rate, which calculates the number of people employed or unemployed looking for work as a percentage of the total adult working-age population, has been steadily falling since 2000.
And based on the latest participation rate data, one has to wonder where has all the labor gone?
The labor participation rate is important because it is a broader measure than the unemployment rate in identifying the workers available to produce goods and services in an economy. In other words, it points to the potential of all productive workers in a society.
In addition, because overall economic growth is driven by increases in productivity and the labor force, the labor force participation rate is a driver of long-term economic growth.
The labor force participation rate also can impact wages.
A low unemployment rate is historically associated with rising wages because a reduced supply of available workers causes firms to raise wages to attract qualified workers. If the unemployment rate is low and the participation rate is rising, however, then more people are coming into the labor force to apply for the job openings and this new supply of workers can hold back wage growth.
The labor participation rate rose from 58.6% in January 1948 to a peak of 67.3% in the first three months of 2000 as baby boomers and more women entered the labor force.
Higher education levels, which are associated with increased participation in the economy, also rose over this period.
The percentage of people 25 years and older who completed high school or college rose from 33.1% in 1947 to 84.1% in 2000, according to U.S. Census Bureau.
Since the peak in 2000, however, participation rates have generally decreased.
The pace of decline accelerated after the Great Recession and hit a 38-year low of 62.4% in September 2015.
The declining labor force participation rate contributed to the slow economic recovery and tepid growth since the Great Recession.
Labor force participation stabilized in 2016 and the rate now stands at 63%, according to the latest data from July.
With these lower participation rates, wage growth has only recently begun to accelerate.
Many researchers have considered the reason behind the decline in participation and point to demographics as the main reason driver.
Economist Alan Krueger found that 65% of the decrease in the labor participation rate from 1997 through 2017 was caused by an aging population, according to a 2017 article published in the Brookings Papers on Economic Activity.
Partially due to the continued aging of the population, the U.S. Bureau of Labor Statistics projects the labor force participation rate will decline further to 61% in 2026.
Low labor force participation implies that some of the labor resources in our economy are not being fully utilized. Those individuals could become productive members of the economy if the barriers they face are removed.
Participation rates vary across the country and the state.
When considering the prime-age labor force, 81.6% of the civilian population ages 25 through 54 were participating in the labor force in 2017, based on the American Community Survey estimates. During the same year, the participation rate was 83.2% in Virginia and 83.5% in the Richmond metro area.
The participation rate was slightly higher, at 86.8%, in Northern Virginia, presumably because of the higher education level of its population as well as the abundant opportunities.
In contrast, the participation rate of the prime-age labor force was 68.8% in Southside Virginia in 2017 and 69.7% in the southwestern part of the state where education levels are lower and job opportunities less plentiful.
This commentary originally appeared in the September 1 issue of The Richmond Times-Dispatch.
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Governor Ralph Northam recently suggested caution in the face of recessionary concerns:  “As the global economy changes, we must be both cautious and strategic.”  Those concerns were largely echoed by the actions of Republicans in the General Assembly who made a priority of boosting the state’s cash reserves.

But another way to help build a healthy state economy is expanding Virginia’s international trade, lowering barriers with our most important trading partners, and creating policies spreading the benefits of trade throughout the Commonwealth, both geographically and by industry sector.

Virginia Members of Congress have an opportunity to do just that by ratifying the U.S.-Mexico-Canada Agreement.

Last year, Virginia exported $18.6 billion worth of American-made products across the world, supporting an estimated 78,000 jobs.   More than $4 billion of that went just to Canada and Mexico, which purchase more American goods than our next 11 trading partners combined.

With bipartisan support over the last decade, this economic boom has spread across all sectors in Virginia.  For example, Virginia’s motor vehicle exports to Canada and Mexico have more than doubled and the Commonwealth’s food and beverage exports to those countries have increased more than three-fold.  Small Virginia companies and their employees have been major beneficiaries:  Two-thirds of the state’s exporters of transportation equipment to those countries have been small and medium-businesses, as have 61 percent of Virginia’s food products exporters.

In fact, one out of six Virginia manufacturers – including nearly 500 smaller companies — export to Canada and Mexico, and more than 13,200 Virginians depend on those exports for manufacturing jobs paying an average $70,244.

The USMCA is a proposed replacement for the North American Free Trade Agreement (NAFTA), now more than 20 years old. This new agreement, which was signed by the three governments and already ratified by Mexico, will make vital improvements to North American trade while also preserving tariff-free regional trade. It would bring North American trade into the digital, 21^st-century economy and provide much-needed certainty to businesses and workers across the country.

NAFTA was in sore need of replacement, having been approved long before the digital revolution of the last two decades.  Importantly, the USMCA establishes higher standards for protection of intellectual property, including updated obligations for each country to safeguard patents, copyrights, regulatory data, trademarks and trade secrets against foreign theft.

It also adds an entirely new chapter on digital trade, ensuring a rules-based foundation for businesses to expand online trade and investments safely and securely, and would work to protect employees across North America by ensuring all three countries adhere to core labor standards. 

Finally,  the agreement for the first time specifically addresses new agriculture technologies to support innovation and reduce trade-distorting policies.  And it ensures Virginia’s farmers have new export opportunities in poultry, eggs and dairy, while maintaining access in soybeans and corn.

Unfortunately, trade issues have taken on increasingly volatile tones in recent years – despite the fact that an economy thrives most in an environment of certainty. 

But the USMCA is an opportunity to give the American economy confidence in our international commerce.  The agreement has bipartisan support from lawmakers in Washington and, most importantly, support from the majority of Americans.

Mexico has already ratified the agreement, and Canada has agreed to follow suit.  Now it is up to Congress, where delay and deadlock are too easily the norms.

The Virginia Congressional delegation has an opportunity to offer bipartisan unity in support of a measure of critical importance to Virginia’s economic health, and should work to break the deadlock and pass the USMCA.

Chris Braunlich is President of the Thomas Jefferson Institute for Public Policy. A version of this commentary originally appeared in the September 4, 2019 issue of the Culpeper Star-Exponent.

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