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November 11, 2012

Charles Lawton: Willing and able workers need the ability to land jobs

The central economic problem of our time is growth or, more precisely, the lack of growth. Why, more than three years after the last recession ended, is job growth so anemic and the unemployment rate so high?

Speculation has centered on business uncertainty – about the fiscal cliff, about the effects of health care reform, about financial regulation, about the high taxes on profits earned outside the country and on and on down the list of reasons not to invest.

But in Maine a large share of the answer is to be found not in business motivation but in the nature of the labor force itself.

Compare two five-year periods, the first between September 2001 and September 2006 and the second between September 2006 and September 2011.

Over the first period, Maine’s civilian labor force grew by nearly 30,000 people, an increase of 4.3 percent. Over the more recent period, it grew by less than 4,500 people, an increase of 0.6 percent.

In September 2001, our labor force participation rate (the share of our non-military, non-institutionalized population holding a job or looking for a job) stood at 68 percent. In September 2006, Maine’s rate stood at 67 percent, and in September 2011 it stood at just below 65 percent. Had the same share of the population wanted a job in September 2011 as did in September 2001, Maine would have had more than 30,000 more potential workers.

So one major reason employment growth in Maine is so slow is that a higher share of the population apparently doesn’t want a job or has given up looking for one. And this relative slowing of the number of Mainers working or willing to work is not entirely the effect of our highly publicized status as the nation’s “oldest” state.

In fact, between 2006 and 2011, the only age cohort for which labor force participation increased was the over-65 age group. Traditional retirement seemed not an option for this group. Their number in the overall population grew by 20,000 over the past five years, and their number in the labor force grew by 14,000. Their participation in the labor force was more than 36 percent higher than it was just five years ago.

For every other cohort (16 to 19, 20 to 24, 25 to 34, 35 to 44, 45 to 54 and 55 to 64) participation in the labor market dropped. Does this trend mean that many have won the lottery, are returning to school or  given up looking for work?

And, for the 55-to-64 cohort, does it mean that the 65-plus group is clogging up advancement opportunities and leaving the group one step down the demographic ladder to bear the burden of cutbacks?

For the younger group, the “back to school” explanation probably explains a large portion of the drop.

Why look for a job when all the evidence says there aren’t any available? But the number who have given up looking for a job far exceeds reported enrollment increases in local educational institutions, so the discouraged worker syndrome seems to be present here.

And what about drops in the 25-to-64 age cohorts? Clearly, not all these labor force “dropouts” are not returning to school.

The most severely impacted cohort appears to be the 55 to 64 group. Between 2001 and 2006, that group increased by 39,000. Of these, 35,000 were in the labor force and all 35,000 were employed.

Between 2006 and 2011, that group increased by 19,000. Of these, only 5,000 were in the labor force and only 1,000 were employed. Clearly, this group suffered both from the recession and from the 65-plus group hanging on to their jobs.

The overall point to be drawn from these figures is that Maine workers desperately need new ways to re-engage in the labor market, new ways to acquire skills, new ways to start enterprises, new ways to create their own jobs.

The key to growth in Maine’s economy is less emphasis on business investment and more on personal worker investment in themselves. We must find ways to meet this need.

Charles Lawton is Chief Economist for Planning Decisions, Inc. He can be reached at:
clawton@planningdecisions.com





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