Behind low jobless rates, economic unease lingers
By: Eric Anderson
Efforts to retain young workers aim to offset aging labor force
At first glance, an economy where just 1.9 percent of workers are unemployed would seem like a good thing.
That’s the jobless rate in Burlington, Vt.
But dig a bit deeper, and you’ll find business leaders concerned about their future.
“There are a lot of challenges,” said Tom Torti, president and CEO of the Lake Champlain Regional Chamber of Commerce. “Whether in the service sector or the high-tech sector, it’s very difficult to find employees.”
Economists have typically considered 5 percent to be full employment, the lowest level that doesn’t lead to inflation.
And with 314 of the nation’s 388 metropolitan areas posting jobless rates of 5 percent or lower in December 2017, most of the country has achieved full employment, according to U.S. Bureau of Labor Statistics data.
Wages are starting to rise in Burlington and elsewhere as people switch jobs or use the scarcity of labor to negotiate a raise.
“Even your pizza delivery people are being paid $2 an hour over minimum wage,” Torti said.
The economy’s strength and job creation are only part of the story. Vermont, like many other states, is losing people.
“Vermont is seeing an out-migration of young people,” Torti said. “We graduate a lot of people. We’re not keeping these people.”
The story is the same in other areas. Ames, Iowa, home of Iowa State University, had the nation’s lowest unemployment rate at 1.5 percent in December.
BLS statistics show the labor force in the state lost 13,000 workers over the previous year.
What’s behind the shrinking rate?
Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors in Albany, cites several factors.
“A lot of people have left the labor force because they’ve retired,” he said. “A lot have left the workforce because they’re discouraged.”
And a lot, he said, have moved elsewhere.
That’s the problem facing much of upstate New York.
“In the Capital Region, we’ve seen gains (in population) over the past several years,” said James Ross, state labor markets analyst. “But much of upstate has seen net out-migration.”
The Capital Region’s unemployment rate, at 4.2 percent in December, was among the lowest in the state, But nationwide, it ranked 238th out of 388 metros.
Out-migration, an aging labor force and even the impact of the opioid epidemic, have been cited as factors in the growing labor shortage.
Princeton economist Paul Krueger, in a Brookings Institution paper last fall, argued that opioid addiction was likely a factor driving declines in labor force participation by working-age adults.
In the Capital Region, employers and organizations such as the Center for Economic Growth and the Capital Region Chamber of Commerce have launched retention programs targeting recent college graduates, while companies such as GlobalFoundries, Regeneron and IBM have heavily recruited locally.
It’s an approach that Vermont organizations and businesses also have pursued, with some success.
Both metros also have nurtured their entrepreneurial talent, sponsoring hackathons, business plan competitions and other initiatives.
With tax reform, “the economy is expanding. A lot of (companies) have benefited from getting significant breaks on their taxes,” Johnson said. “They want to do something with that,” such as hire workers, he said.
That demand is putting upward pressure on wages, and that could end up pressuring those companies’ profit margins, he said.
Lurking in the background are the concerns about what impact tightening immigration might have. Will foreign students, for example, be able to remain here after they graduate?
“If legal immigration is less, and they’re clamping down on illegal immigration, that’s a source of labor that’s also no longer available,” Ross said.
“We are a state of immigrants,” said Torti of Vermont. “It bothers me” that immigrants might not be permitted to help ease the labor shortage.
“We’re not going to birth our way out of this.”
In New York, another potential headwind is the limit placed on the deductibility of personal and property taxes.
Wealthier taxpayers “don’t like tax reform,” Johnson said. “We’ve seen out-migration.
“You just don’t get that good, solid feeling of economic momentum.”