For many years, critics of the federal government’s monthly unemployment reports have charged that they are less representative of the country’s economic status than are the numbers for labor force participation, and a recent analysis says this has profound implications for the manufacturing sector.
In terms of the overall unemployment figures, Federal Reserve Chairman Jerome Powell told the Economic Club of New York in early February, “Published unemployment rates during COVID have dramatically understated the deterioration in the labor market. Most importantly, the pandemic has led to the largest 12-month decline in labor force participation since at least 1948.”
He took particular issue with the federal government’s official unemployment number that was reported for January of 6.3%, which he believes was actually closer to almost 10%. Powell says the official number fails to take into account the vast numbers of people who have been driven from the workforce and have given up looking for work by COVID-19.
He notes the disappearance of employment opportunities in sectors that have been most impacted by the pandemic, including restaurants, hotels and entertainment venues, which have led many to withdraw from the workforce. For other workers, virtual schooling has forced many parents to leave the workforce to provide all-day care for their children.
Nearly five million people reported that the pandemic prevented them from looking for work in January. In addition, the Bureau of Labor Statistics (BLS) reports that many unemployed individuals have been misclassified as employed.
While correcting for this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate close to 10% in January, Powell stresses that “even those grim statistics understate the decline in labor market conditions for the most economically vulnerable Americans—those who are paid low wages.
He explains, “Aggregate employment has declined 6.5% since last February [2020], but the decline in employment for workers in the top quartile of the wage distribution has been only 4%, while the decline for the bottom quartile has been a staggering 17%.”
Not all of this can be blamed on COVID-19, Powell admits. Even in a healthy market-based economy, the normal and ongoing churn will always render some jobs obsolete as they are replaced by new employment opportunities. In this case, it is normal for workers and capital to move from firm to firm and from sector to sector.
He adds it is likely that COVID-19 has fed the need for such movement. “Since the onset of the pandemic, we have been concerned about its longer-term effects on the labor market. Extended periods of unemployment can inflict persistent damage on lives and livelihoods while also eroding the productive capacity of the economy. And we know from the previous expansion that it can take many years to reverse the damage.”
Manufacturing’s Dilemma
Attorneys Thomas M. Lucas and Shaun M. Bennett of the Jackson Lewis law firm also assert that the ongoing pandemic contributes to the loss of manufacturing jobs and lower levels of workforce participation by workers in all age groups, which has contributed further to the skills gap suffered by the industry.
Before COVID-19 surfaced in the U.S. in early 2020, a shortage of skilled labor in all areas in manufacturing had been evident for decades, a situation that was made worse by the eventual aging and retirement of skilled workers of the Baby Boomer generation, they note.
The labor force participation percentage is calculated as the number of adults in the labor force—those who are either employed, or unemployed and actively looking for a job—divided by the adult population.
The labor force participation percentage peaked at 67.1% in February 2000, after having risen steadily the previous three decades, Lucas and. Bennett point out. Since 2000, the overall labor force participation rate has declined steadily, to just 62.9% in 2018. In January 2021, the overall workforce participation rate fell to just 61.2%.
The downward movement in participation rates in that period can be attributed to two trends, according to the attorneys. First of all, the increased level of participation by women bolstered overall workforce growth in the last half of the 20th century, but that growth trend ended along with the 20th Century.
Second, as Baby Boomers grew to constitute a greater percentage of the population, participation rates continued to decline, because Boomers (especially those over 65) are less likely to continue working, a trend that also was referred to by Powell.
During the same period, manufacturing output rose 5%, but at the same time the industry became more capital-intensive than labor-intensive. This resulted in a “skills mismatch”—a gap between the skills workers have to offer and those manufacturers need. This skills differential contributed to a decline in levels of manufacturing employment, Lucas and Bennett observe, especially for those with less than a basic high school education.
A total of 7.5 million manufacturing jobs were lost between 1980 and 2017, and men and women aged 21 to 55 with less than a high school degree suffered the greatest impact from lower levels of manufacturing employment. Those losses also are believed to have contributed to further decline in labor force participation rates, because participation rates are generally lower for older workers.
The attorneys agree with Powell that the COVID-19 pandemic has been a significant contributing factor in the decline in overall employment and participation rates in the manufacturing industry as well as others. “Significantly, 582,000 manufacturing jobs were lost between April 2020 and February 2021. Although the overall participation rate was 63.4% at the beginning of the pandemic in February 2020, that number fell to 60.2% by April—below 61% for the first time since 1973,” they say.
By November 2020, the participation rate had recovered to 61.5%, but, in that month alone, almost four million workers reported not seeking work because of the pandemic. In January 2021, the participation rate dipped to 61.2%, although BLS had projected the participation rate would not fall to 61% until 2026.
“While the manufacturing sector largely avoided the disastrous impact of COVID-19 that the service sector experienced, it is being affected by a long-term decline in employment levels of older, skilled workers and an unexpected dip in labor force participation in all age groups coincident with the pandemic,” Lucas and Bennett explain.
They say some help may be on the way courtesy of the new Biden administration. On Feb, 17, the President issued an executive order that resulted in the Department of Labor (DOL) announcing accelerated expansion of apprenticeship programs and a relaunching of the federal Advisory Committee on Apprenticeship.
The administration also has expressed support for the National Apprenticeship Act of 2021, which was passed by the House of Representatives on Feb. 5. That bill provides statutory authority for the registered apprenticeship program within DOL and authorizes related grant programs, among other provisions.
