Fewer working in Michigan’s recovery

Brian J. O'Connor
Detroit News Finance Editor

When the Michigan unemployment rate dropped to match the national average of 5.6 percent in March, it was a case of good news and bad news.

The good news is that after nearly 15 years, Michigan finally had narrowed an unemployment gap that widened to as much as 5.4 points above the U.S. rate during the recession. In April, the state dropped again to match the national jobless rate of 5.4 percent.

The bad news is that a big part of the reason the state jobless rate dropped was that since 2007, nearly 300,000 Michigan workers had given up looking for a job. Workers older than 60 retired early after finding no jobs available after the recession hit. And those younger than 25 stay on the employment sidelines in school, where they can borrow to cover their tuition. Others, however, in the peak of their working years, lack the education and skills needed for modern jobs. Add them into the unemployment calculations, and the official unemployment rate would more than double.

Whatever the reason, Michigan’s drained labor pool threatens to create a serious shortage of workers in as little as a year.

“There are two ways to lower the unemployment rate, and one of them is more fun than the other,” said Charlie Ballard, a Michigan State University economist. “One is that somebody got a job. The other is all of these other stories.”

Two of those stories come from Dedria Tarver and Shella Mitchell. Ask these vanished workers where they’ve been and they’ll tell: Right here all along.

After 16 years as a housewife, Tarver trained as a nursing assistant and was working, but after six months, was injured on the job. That was three years ago, and her doctor told the 46-year-old Detroiter not to go back to nursing. She then landed a medical filing job for a few months, but was laid off when the work dried up.

“I don’t have a lot of work history because previous to that I was a housewife,” she says. “Even with the simplest of jobs, it seems like I know I can get this, but they want to know what you did in between.”

Mitchell had a job she loved as an administrative assistant in a funeral home. Business slowed during the recession, a story she heard from other homes, too. “I looked for about eight months,” the 56-year-old Royal Oak resident said. “Then I guess I just needed to find myself again and spend some time just doing family things.”

Both women are taking training courses at JVS in Southfield, a nonprofit vocational training center, and aim to rejoin the job hunt in a few months. The same cannot be said for another 284,000 Michigan workers who’ve vanished from the state labor pool since the beginning of the Great Recession.

Employment dropouts

In a perverse case of a silver lining, those workers who’ve gone MIA helped push Michigan’s jobless rate down to 5.6 percent in March and then to 5.4 percent in April, its lowest level in more than 12 years. In several metro areas across the state, much of the big drop in the local area unemployment rate comes largely from dropout workers.

In the Bay City area, 1 worker dropped out of the local labor pool for every 1.4 workers who found a job; in nearby Saginaw, 1 worker dropped out for every 1.8 people who found employment.

The situation is worse in Metro Detroit. There, for every person who found a job between March 2014 and March 2015, 6.2 workers left the regional labor force, either returning to school, retiring, leaving the area or simply giving up on finding a job. While 10,000 Metro Detroiters got on a payroll during March, 62,000 others in the region decided they were better off giving up the hunt.

The dropouts account for nearly all of the huge drop of 3.4 percentage points in the region’s local unemployment rate, which fell to an adjusted rate of 6.4 percent in March. In April, the rate dropped to 6.2 percent because another 4,000 workers left the labor pool.

“It’s happening around the country and it’s a huge deal,” says Dean Baker, co-director of the Washington, D.C.-based Center for Economic and Policy Research. “One of the main reasons we’ve had the unemployment rate falling in the last two or three years is that people are dropping out of the labor force.”

The official unemployment rate is a simple piece of math: the total of the state labor pool divided by the number of men and women looking for jobs. The labor pool is made up of everyone with a job, plus the people who tell a household phone survey that they’re looking for work. Anybody not actively job hunting is out of the pool — and out of the count. That creates a slightly smaller labor pool total, but also a significantly smaller number of job hunters to divide into that total.

Consider this: In March, the total of unemployed was 276,000. Divided into the 4.7 million of the state labor force, it produced an unadjusted jobless rate of 5.7 percent (it was adjusted to 5.4 percent for seasonal technical reasons). Now add the dropout workers back to both the labor force and the count of the unemployed, and it nearly doubles the number of people who need a job. With a jobless total of 551,000 divided into a somewhat larger labor pool of 4.9 million, the unadjusted unemployment rate would soar to 11.1 percent — a rate the state last hit in 2010, just as the recession ended.

Nationwide, the percentage of working-age adults with jobs or looking for one is lower than before the recession. But the number of dropout workers in Michigan means the state is one of the 10 worst when the level of employment is compared with total state population, noted Lou Glazer, president Michigan Future Inc.

“There’s a smaller proportion of adults working today across the country,” Glazer said. “It’s a national trend, it’s just worse in Michigan. We’re not creating enough new jobs to raise the proportion of adults who are working. Ultimately, that should be the goal, not just a lower unemployment rate.”

Three types of dropouts

The dropouts are drawn largely from three pools of workers, economists say. One is workers near retirement who, once they couldn’t find work during the recession, opted to retire earlier than planned.

The other two groups are the youngest potential workers and some of the oldest, said economist Don Grimes of the University of Michigan’s Institute for Research on Labor, Employment and the Economy.

One pool includes workers older than 50, primarily men, with high school degrees or less who could once find good-paying factory jobs that disappeared in the last two decades. Those jobs were either shipped overseas, eliminated during the recession, recast to require increased technical skills or converted to lower-paying positions, such as the $14 hourly wage introduced by automakers and the United Auto Workers, while higher-tier workers make $28.

The other is very young workers, 16-25 years old, who used to work part time, summers or during school. They may be unable to find jobs or may be relying on school loans for support.

“You’ve got people who’ve been out of the workforce for so long that they’ve lost their job skills,” Grimes said. “Maybe they’re working off the books or being supported by their spouses. Then you have this young cohort where people are going to college, and they’re not in the labor force because there are fewer opportunities and they’re being sustained by borrowing student loan money. And there are less opportunities.”

In the short term, the shrunken labor force spells good news for the state’s unemployment rate, but in the not-so-distant future, companies here or considering relocating to or expanding in the state might find there simply aren’t enough qualified workers to fill their job openings.

“Places that don’t have growing labor forces are going to have real job shortages going forward,” said Glazer of Michigan Future.

“We’re about to head into an era where Michigan is not going have an unemployment problem, we’re just simply not going to have enough workers unless we pull all those people in the labor force back into employment,” he said. “Michigan’s got it worse than most places.”

Added Grimes, the UM economist: “I think, in a year, it will become something that people will really focus on.”

For now, more workers like Dedria Tarver and Shella Mitchell are getting ready to jump back into the labor pool, said Karen Gutman, director of business and career services at JVS, which provides counseling, training, support services and more. Last year, JVS had 6,100 people sign up for help with a job search.

“We do see that people who were discouraged are coming back and looking for a new start,” Gutman said. “There are jobs out there, so if people are getting in a funk because they’ve been unemployed for some time, they need to re-engage.”


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Twitter: @BrianOCTweet