Employment Rates Nudge Closer to Pre-Recession Levels

This article was originally published by the State's Fiscal Health initiative of The Pew Charitable Trusts and was written by Jeff Chapman, Ruth Mantell, and John Hamman.

The U.S. employment rate for adults of prime working age rose during the 12 months that ended in June 2016, extending an uptrend that began more than four years earlier. But even with those gains, the percentage of 25- to 54-year-olds with a job in fiscal year 2016 clearly remained lower than in calendar year 2007, just before the Great Recession, nationally and in 18 states. 

The employment-to-population ratio for 25- to 54-year-olds, which measures the share of people in their prime working years who have jobs, incrementally increased during the fiscal year ending in June 2016. Nationwide, an average of 77.6 percent of prime-working-age adults were employed in fiscal 2016, compared with 77.0 percent during fiscal 2015. In the wake of the 2007-09 recession, the employment-to-population ratio hit lows of about 75 percent for prime-age workers.

The share of prime-working-age adults who are in the labor market but unable to find work—as measured by the unemployment rate—has fallen nearly to pre-recession levels. The lower employment ratio reflects an increase in the share that are not working nor looking for work. In fiscal 2016, the U.S. prime-age employment-to-population ratio was 2.4 percentage points below the calendar 2007 level of 79.9 percent. The difference means that for every 100 adults in this age group, 2.4 fewer had jobs during the year ending in June 2016 than before the recession. 

In fiscal 2012, 36 states had employment rates that lagged calendar 2007 levels by a statistically significant amount. By fiscal 2016, this number had fallen to 18. Most other states in fiscal 2016 had estimated rates below pre-recession levels, reflecting the national trend. No state’s rate had surpassed calendar 2007 levels by a statistically significant amount.

Download the data.

State Highlights

A state-by-state comparison of the difference in the employment-to-population ratio for 25- to 54-year-olds between 2007 and the year ending in June 2016 shows:

• Among the 18 states with statistically significant differences in their employment rates, the largest difference was in New Mexico. For every 100 prime-working-age New Mexicans, 6.9 fewer were employed.
• Employment rates were lower in an additional 30 states but not by statistically significant amounts, so it is unclear whether their rates had recovered.
• Indiana’s and Michigan’s rates were higher than in 2007, by 0.4 and 1.0 percentage points, respectively. However, the differences were not statistically significant.
• In fiscal 2016, seven states fell off the fiscal 2015 list of those with statistically significant differences in their employment rates —Arkansas, Colorado, Maryland, Mississippi, New Jersey, Pennsylvania, and West Virginia. This means that their rates today are probably closer to their pre-recession levels than they were last year. Elsewhere, Louisiana and Rhode Island moved onto the list of states with statistically significant differences in employment rates.

How Employment Affects State Ledgers

Economic conditions, including employment, are major drivers of state finances. Changes in employment rates among adults in their prime working years can affect both sides of a state’s budget ledger.

• Revenue: Paychecks help generate individual income tax dollars and fuel consumer spending, which produces tax revenue from sales and business income.
• Expenditures: Unemployed people frequently need more services such as Medicaid and other safety-net programs, which can increase states’ costs.

A rebound in employment rates may provide some relief to states that have experienced budget pressures in recent years. According to Pew’s Fiscal 50 research, inflation-adjusted tax receipts in 29 states have bounced back from drops during the Great Recession. However, most states have smaller financial cushions than they did before the recession.

What Is the Employment-to-Population Ratio?

Although unemployment figures receive substantial media attention, many economists also track the employment-to-population ratio because it provides a broader view of labor market conditions. The unemployment rate, for example, excludes people who are not looking for jobs, but the employment rate captures this group in its measurement of population.

Focusing on 25- to 54-year-olds reduces the distortion of employment trends resulting from demographic effects such as older and younger workers’ choices regarding retirement or full-time education.

Another gauge of employment trends is the labor force participation rate. While the employment-to-population ratio tracks people who have jobs, the labor force participation rate measures people with jobs and those actively looking for work.

A statistically significant decrease or increase indicates a high level of confidence that there was a true change in the employment rate. Changes that are not statistically significant offer less certainty and could be the result of variations in sampling or other methods used to produce employment estimates. Without additional testing for statistical significance, caution should be exercised when comparing changes in employment rates among states.

Download the data to see individual state trends. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.

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