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Published in Talent
New report examines causes of Michigan’s declining labor participation rate COURTESY OF TALENT FIRST INC.

New report examines causes of Michigan’s declining labor participation rate

BY Monday, November 28, 2022 04:48pm

Falling off the “benefits cliff,” declining higher education enrollment, and a widespread skills gap have each contributed to Michigan’s labor force participation rate dropping by nearly twice the national average over the past two decades.

The findings are part of a new report from Talent First Inc., an alliance of West Michigan CEOs serving a 13-county region, that cites federal data showing the state’s labor force participation rate dropped 8.7 percent from January 2000 to August 2022.

Several factors contributed to the decline, including incarceration rates, substance use and dependency, declining higher education enrollment and gaps in workers’ skills and employers’ needs, according to the report. 

The report also highlights social benefits programs, including the “benefits cliff,” which occurs when a small increase in earnings pushes a family just over the poverty line and outside of the qualifying income for receiving state benefits to make ends meet. 

Additionally, the Social Security Disability Insurance program has explicit non-work components, requiring those in the program to demonstrate an inability to work before receiving benefits. The Talent First report suggests this severely limits people who are capable and willing to work from doing so at the risk of losing their benefits. 

While the government’s handling of social programs is out of an employer’s control, executives can help existing and potential employees as they experience the potential of losing benefits and earning an income that meets their needs, said Talent First CEO Kevin Stotts.

“Employers can have navigators who can help some of their employees who are facing those cliffs make long-term plans and establish support,” Stotts said. “The benefits cliff is real, and it can take a while with promotions and bonuses and increases in salary to bridge that chasm. From an employer strategy, you should be front-loading assistance programs, whether health care, training and development, or tuition assistance programs.”

Higher ed, training 

The most significant labor force decline is occurring among people ages 16 to 25. While that would typically reflect youth going to school before entering the workforce, college enrollment in Michigan is down. In fact, Michigan leads the nation in enrollment decline for fall of 2022 with a 4.1-percent drop from fall 2021, according to the National Student Clearinghouse.

Michael Horrigan, economist and president of the Kalamazoo-based W.E. Upjohn Institute for Employment Research, says that the demands for people attending school take precedence over work.

“Summers are shorter, and you need to be doing internships nowadays. As a parent, I want my kid to be studying rather than working a part-time job, if I can afford that,” Horrigan said. 

Horrigan also emphasized the need for training programs, citing the gap between worker skills and employer demand. While Michigan workers without a high school diploma are twice as likely to be out of the workforce, the Talent First report also shows an 8-percent drop in labor force participation among people with a high school diploma and some college.  

“To me, that shows a clear mismatch in employer expectations and employee skills,” Horrigan said. “That may affect the ability of high school graduates or of associate degree holders to find work.”

A recent Michigan Works! survey underscored the fact, finding that a lack of skills is the second-largest barrier to being employed, only behind inadequate pay. 

Excluded populations

In addition to people facing the benefits cliff, individuals with a criminal history — or one-third of working-age adults in Michigan — are almost entirely excluded from the workforce. Expungement fairs have been successful in removing barriers for people with a criminal record, while improved transition programs with expanded criteria for certifications, rehabilitation and employability could help bridge the gap between felons and the labor force, according to the Talent First report.

“So many folks with criminal records simply never have a chance,” Horrigan said.

Stotts noted another group facing barriers: immigrants and immigrants with certifications and licensing from their home country or home state. Cohesive regulations and expanded requirements could allow for professionals to work in the fields in which they are trained without the need for additional, state-specific training and without having to pay or put in required hours for recertification.

“We need to figure out how we can recognize their training and education, so they can start working right away and not get stuck,” Stotts said. 

On top of the factors contributing to Michigan’s steadily declining labor participation rate since 2000, the COVID-19 pandemic accelerated the problem: Nearly 80,850 fewer laborers are in the workforce today than before the pandemic. The report notes that the disruption from COVID is a symptom of the landscape, not a cause. 

If the state’s labor force maintained over the past 20 years, the labor force would expand by 17 percent, or 807,000 people, according to the report. 

While the report focuses on measures to restore these numbers, Horrigan is hesitant about whether it can be done. He says the data tell a story of the need for skills and training. 

“You have to have a little bit of patience with the data,” Horrigan said. “It’s not clear to me that labor force participation will ever go back to where it was before. When we look at these numbers, we think of these people as having left the labor force forever, and I think the more realistic interpretation is that there is more movement in and out of the labor force and more often, which may be a reflection that worker-firm matches might not always work out. And it comes down to a skills story — what we need with the labor market and training.”

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