The emerging downside of low unemployment

June 8th, 2017

For some workers, employers' challenges will open great opportunities.

By Bob Caylor | The News-Sentinel

The news on employment is so good that a downside is beginning to emerge: Unemployment has dropped low enough that filling job openings is becoming difficult.“The challenge is, we don’t have enough people to fill thousands of open positions,” said Rick Farrant, director of communications at Northeast Indiana Works.

An example Farrant provided: At a job fair in Fort Wayne in May, 60 employers signed up to search for workers there. Those employers had 1,400 jobs open among them.

But for workers or job seekers willing to play a longer game, this challenge for employers represents an even greater opportunity for employees. An aging regional workforce, with tens of thousands of impending retirements, will need many more workers, especially workers willing to continue their educations beyond high school.

Economists and economic-development specialists differ on what constitutes “full employment.” Traditionally 5 percent was considered full employment; some now say 4 percent or even 3.5 percent constitutes full employment. By any of those standards, northeast Indiana is close to or below full employment.

In the latest county-by-county unemployment figures, every county in this corner of the state shows unemployment that was below the state average of 3.8 percent in March. Allen and Wabash counties had the highest unemployment rates, 3.7 percent. Huntington reported 3.6 percent.

Every other county’s jobless rate was 3.5 percent or less. LaGrange County had the lowest rate of joblessness in March, with 2.8 percent.

Obviously, having so many people at work is overwhelmingly good for individuals and for the region as whole. It means more people are making money, and workers have more choices and job mobility when employers are trying to fill more positions from a smaller pool of unemployed. And at the same time, that competition tends to drive up wages, at least in some fields.

To some extent, declining unemployment is a problem (from employers’ perspective) that provides its own solution. As more jobs open up, sometimes at higher wages, people who have been on the sidelines of the job market rejoin the workforce and take jobs or begin seeking them.

However, John Stafford, the acting director of the Community Research Institute at IPFW, sees signs that rising demand for workers may have just about dried up that supply of potential employees on the sidelines. The evidence lies in the size of the labor force as measured by state and federal agencies.

Comparing figures on the size of the labor force – the number of people working or seeking work – in March 2015, March 2016 and March 2017, March 2016 was the peak across the region. In the 11 counties of northeast Indiana, the labor force was 388,875 in March 2016, up by about 5,500 from the previous year. But the labor force had dwindled to 385,651 in March this year.

In fact, the labor force declined in every county in the region (except LaGrange) in March 2017 compared with a year earlier. In LaGrange, the labor force grew about 1.2 percent in that year.

How to explain what looks like it may be a plateau in the labor force? The place to start is with the increasing impact of retirement, Stafford said. More than 70 million people in the United States are part of the baby boom generation, and they range from about 53 to 71 years old. Many older boomers are retiring or downshifting to part-time work.

A second issue doesn’t lend itself to such easy analysis. “There has been a rather significant and somewhat abrupt drop in the male labor-force participation,” Stafford said.

A third part of the explanation lies in the changing needs of employers. “There’s been a significant restructuring of the types of jobs businesses are looking for,” he said. The economic shock of the Great Recession “required them to get lean, and when they came out of it, they stayed lean.”

Ellen Cutter, director of strategy and research for Greater Fort Wayne, adds another factor that limits the growth of the labor force: people are leaving and not returning, or they’re not moving here in the first place.

An analysis by Greater Fort Wayne found that from 2010 to 2015, 2,923 fewer residents arrived in Allen County than left through domestic migration.

Those who promote economic development in the region praise the state’s Regional Cities initiative and other efforts to make this a more appealing place to live. That’s one of the main strategies that the Northeast Indiana Regional Partnership, in cooperation with other groups, is promoting as part of its “Road to One Million” campaign to increase the population of northeast Indiana from 790,000 now to 1 million in 2031.

Michael Hicks, director of the Center for Business and Economic Research and professor of economics in the Miller College of Business at Ball State University, said a fundamental impact of extremely low unemployment is that companies can’t conduct as much business as they would if more employees were available.

“Availability of workers is part of (gross domestic product) growth,” Hicks said. “I don’t think there’s a big army of discouraged workers out there.”

Consider an everyday example. When workers are hard to find, a restaurant owner may not be able to stay open longer hours or add to the menu.

“Once the service at fast-food restaurants starts to suck, you know the economy is strong,” Hicks said, chuckling but not really joking.

In an economic upswing like this, organizations responsible for economic development need to change direction, Stafford said.

“It’s a huge shift, from Job 1 being attracting employers to expanding and upgrading employee skills,” he said. One advantage here is that neither aspect has been ignored, he noted.

In the depths of the most recent recession, the Northeast Indiana Regional Partnership in particular embraced goals of getting more people to continue education after high school and improving the attractiveness of the region as a place to live.

Farrant described the challenge in workforce development as getting young people especially to look beyond jobs available today. “You have to focus on jobs in demand now and jobs in demand in the future,” he said.