Key Insights
- Despite a high of 358,000 job openings Michigan’s labor force participation rate hit an all-time low of 58.9 percent in May 2021, a loss of 217,000 participants since COVID.
- Millennials, minorities, and women suffered disproportionate job losses and labor force exits at the onset of the pandemic that still persist, keeping thousands out of Michigan’s workforce.
- Expanded unemployment benefits are contributing to declining labor force participation and driving wage growth to exceed inflation in industries with high shares of low-skill workers, increasing competition among employers for this group of talent and raising the ‘reservation wage’.
- Increasing preferences toward part-time work have also contributed to Michigan’s shrinking labor force, especially among prime-age men (ages 25-54) who have voluntarily reduced hours spent working or looking for work to gain more leisure time.
- The pandemic has accelerated retirement among Baby Boomers, further decreasing labor force participation and increasing the risk of talent shortages over the next decade — especially among high-level, leadership roles.
- Net population growth in Michigan remains positive but unsubstantial, with the state gaining just under 3,000 residents in 2019 — nearly a third of the 11,000 residents gained the previous year and one-fifth of the 15,000 residents in 2012.
- West Michigan is expected to gain 20,520 new jobs by 2028, accounting for 3 in every 4 new jobs emerging statewide over the next 10 years, creating even more pressure on employers to find talent.
Michigan’s Shrinking Labor Force
Today, Michigan’s economy is suffering from what some are referring to as the “COVID paradox”: thousands of people are out of work, thousands of open jobs and thousands of people are voluntarily opting out of the labor force. As of June 2021, nearly 251,000 Michiganders were unemployed and over 167,000 had dropped out of the labor force — despite a record number of over 356,000 job openings.
Over the past 18 months the labor force participation rate (LFPR) in Michigan, which measures the share of the population working or actively seeking work, has dropped to historic lows we haven’t seen since the recession of the mid-1970s. The labor force participation rate in the state has remained above 60 percent since the trough of 2012, with the rate in February 2020 peaking at 61.6 percent. The pandemic’s impact on the supply of labor was immediately evident when the state’s LFPR dropped to 57.4 percent in April 2020, although it quickly recovered and remained above 60 percent throughout the year. It wasn’t until 2021 that labor force participation in Michigan showed evidence of long-term decline, dropping to 59.8 percent in January and falling even further to stand at 58.9 percent as recently as May 2021 — a loss of 26,000 participants since the start of the year and over 217,000 since the onset of the pandemic.
Impact: Absent strategies that encourage people to re-enter the workforce, employers will continue to compete over a shrinking pool of candidates.
The Impact of COVID on Millennials, Minorities, and Women
It is not by chance that millennials, minorities, and women were among those most affected by layoffs and labor force exits as a result of the pandemic. Each group was disproportionately represented among the industries most disrupted by COVID and those slowest to return to their normal levels of profitability following the lockdown — predominately Leisure and Hospitality and Retail Trade. Nearly 59 percent of all Accommodation and Food Service jobs were held by millennials last year, as were 53 percent of jobs in Arts, Entertainment and Recreation. Both industries lost nearly a quarter of their jobs at the onset of the pandemic and have since recovered, but 1.1 million more millennials remain unemployed and 1.3 million have left the labor force since February 2020. The drop in millennial labor force participation since the pandemic stands at -2.1 percent, almost double the overall rate, while the unemployment rate among millennials grew by 2.2 percent to hit a total of 3.2 million unemployed last month.
Similar trends were observed among Black and Hispanic workers, who comprised over 1 in 3 workers in both industries most affected by layoffs resulting from the pandemic. The unemployment rate among Black workers swelled by 3.2 percent since February 2020 — twice the growth observed for White workers — and Black labor force participation fell by -0.6 percent, leaving 628,000 more unemployed and 128,000 out of the labor force. Although Hispanic unemployment hasn’t grown as significantly as Black unemployment, rising by 2.5 percent (724,000 jobseekers) since COVID, the drop in labor force participation among Hispanics was the largest of any demographic group — shrinking by -2.3 percent, reflecting 308,000 fewer labor force participants. In comparison, White unemployment rose by just 1.9 percent (1.8 million jobseekers), less than the overall rate of 2.3 percent, while labor force participation has fallen on par with the overall average of -1.2 percent (1.9 million fewer White participants).
Although men typically lose work early in a recession because they tend to be employed in industries that are more cyclical, the early stages of the pandemic saw rapid declines in female-dominated industries, such as Leisure and Hospitality. Layoffs, pay inequality, and the ongoing childcare crisis spurred a mass exodus of women from the labor force. There are now nearly 1.7 million fewer women in the U.S labor force than before the pandemic, resulting in a -1.6 percentage point drop to female labor force participation — doubling the -0.8 percent rate of decline observed among men, who have 370,000 fewer labor force participants nationwide. The unemployment rate among women has also grown quite substantially compared to men. As of June 2021 there were 4.6 million female jobseekers across the U.S, nearly 2 million above pre-COVID, which means the female unemployed population remains 74 percent larger than before the pandemic — compared to just 47 percent for men, who gained 1.6 million additional jobseekers since February 2020.
Impact: The return of jobs in industries that employ these populations, as well as widespread access to affordable child care, the return to in-person K-12 instruction, and assurances that it is safe to return to work will increase the number of women, millennials, and minorities engaged in the workforce. Employers will need to emphasis the value of transferable skills in the hiring process to attract dislocated workers into new industries and occupations.
Enhanced Unemployment Benefits
The talent shortages defining the current labor market have driven wage growth to exceed inflation in industries with the highest shares of low-wage jobs, while competition against enhanced unemployment benefits has resulted in increased market power among low-wage workers. This increased demand and a shrinking pool of available low-wage workers may have raised what economists call the “reservation” wage, the lowest pay for which someone is willing to work. According to surveys by the Federal Reserve Bank of New York, low-wage workers (earning $60,000 per year or less) have raised their annual reservation wage from $42,000 in November 2020 to $51,000 in March 2021 — meaning the wage required to compete against the enhanced UI benefit of $16.55 per hour and entice low-income workers to rejoin the workforce has risen by 21 percent.
Although the rate of inflation currently eclipses total private-sector wage growth in Michigan, at 4.6 percent compared to June’s inflation rate of 5.4 percent, wage growth in goods-producing industries have significantly exceeded inflation — rising by 7.1 percent to stand at $30.13 per hour, an average increase of $2.00 from June 2020. Although wages have grown in every sector aside from Information, the most significant wage hikes were observed in industries with the highest share of low-skill, low-wage jobs: Manufacturing (7.4%; +$1.99), Leisure and Hospitality (6.4%; +$0.97), and Trade, Transportation and Utilities (5.9%; +$1.38).
Impact: Enhanced unemployment benefits have created an artificial barrier to employment, driving wage growth to surpass inflation in industries where a majority of workers earn below the competing UI wage rate of $16.55 per hour. Artificial wage pressures, combined with a shrinking workforce, have led many employers to offer sign-on or retention bonuses or additional perks in an effort to attract and retain workers in this hyper-competitive environment.
Demographic Drought
Amidst the backdrop of the low-wage labor shortage caused by enhanced unemployment benefits, there’s an emerging trend that may pose greater risks to the future supply of labor: the mass exodus of retirement-aged baby boomers induced by the pandemic. A recent study from Pew Research Center shows that COVID-19 has contributed to a rapid increase in early retirements among Boomers — born between 1946 and 1964 — who have been forced out of the labor market due to job loss, fear of exposure, or the changing nature of work (more remote, isolated, and technology-dependent). Since the onset of the outbreak, the number of Boomer-aged retirees nationwide has increased by about 3.2 million compared to previous years. The effect was more prominent among Boomers lacking education beyond high school and those who identified as Asian or Hispanic. A study from the University of Chicago supports these findings: “Early retirement [is] a major force in accounting for the decline in the labor-force participation. With the high sensitivity of seniors to the Covid-19 virus, this may reflect, in part, a decision to either leave employment earlier than planned due to higher risks of working or a choice to not look for new employment and retire after losing their work in the crisis.”
The largest generation in US history remains a powerful cohort of key workers in Michigan, comprising 22.3 percent of the state’s labor force, or over 1.1 million participants, as recently as 2019. Their imminent departure from the labor force over the next decade will leave over 1 million job vacancies statewide that will be difficult to fill. Given the generation’s attitudes toward work and high net worth, the typical Baby Boomer is also vacating a senior-level, highly valued leadership position in their company — meaning the workforce is slated to lose a tremendous amount of accumulated knowledge and experience, increasing the risk for potential leadership shortages in the near future.
The population is aging and research indicates there won’t be a sufficient supply of incoming talent to replace this retiring generation from natural sources like migration or birth, especially considering the U.S birth rate hit a 35-year low in 2019. In Michigan, births outnumbered deaths by 13,500 in 2019, reflecting a -43.9 percent reduction from the natural growth of 24,000 in 2012. Currently, 37.6 percent of residents in Michigan are aged 50 or older, compared to a 34.2 percent share of the region’s population in 2010. The size of the prime-age population in Michigan (ages 25-54), has shrunken by -5.1 percent over this 10-year period, reflecting a loss of over 202,000 residents in their peak earning years.
In addition to a declining birth rate and rising number of deaths, net population growth in Michigan is shrinking due to fewer immigrants moving into the state and a growing share of residents relocating to other states — with young, educated talent comprising a majority of those leaving the state. Net growth in Michigan remains positive but insubstantial, with the state gaining just under 3,000 residents in 2019. This is nearly a third of the 11,000 residents netted the previous year and one-fifth of the 15,000 residents netted in 2012. The volume of immigrants moving into the state has fallen by 38 percent since 2015 — totaling just 13,100 in 2019 — while the number of residents leaving the state has grown by 35 percent to stand at 23,600 in 2019. Those leaving Michigan had a median age of just under 30 years old and more than 45 percent have a college degree.
Impact: Early indicators suggest that population mobility will continue to decline as remote work becomes increasingly popular, meaning migration will not be a sufficient source of new talent to fill the vacancies left by retiring Baby Boomers. West Michigan employers will need to focus on retaining and developing the existing regional talent base, while also competing nationally for the remote workforce.
Shifting Attitudes toward Part-time Work
Another notable trend contributing to declining labor force participation over the past decade lies in shifting attitudes toward part-time work, particularly among prime-age men (ages 25-54). The Great Recession of 2008 erased 4.5 million largely full-time jobs from the male-dominant construction and manufacturing industries, while a majority of available jobs at the time were in industries typically reliant on part-time work, like restaurants or retail establishments. Thus, huge numbers of prime-age men opted for these 20- to 30-hour per week jobs simply because there were no full-time alternatives available at the time. The share of part-time jobs held by prime-age males jumped from 4.7 percent in 2007 to 7.5 percent in 2010, which means nearly 1.2 million prime-age men across the U.S. joined the part-time workforce — which swelled by 46.8 percent immediately after the recession and currently stands 22 percent larger than before the Great Recession, equating to over 574,000 prime-age men.
The problem is that even as the US recovered from the recession and unemployment rates dropped to historical lows, the prime-age male workforce didn’t return to full-time work. The number of prime-age men willingly opting for a part-time job jumped from 6 million in 2007 to nearly 8 million in 2019. This was particularly prevalent among men aged 21 to 30, who were working 200 fewer hours on average in 2015 than they had been in 2000 — 15 percent of these men had not worked a single week in 2014.
One surprising reason for the uptick in part-time work among men might involve video games. According to the National Bureau of Economic Research, the decrease in hours worked for men ages 21-30 exactly mirrored the increase in video game hours played. These men voluntarily decreased their time spent working or pursing professional development opportunities in order to increase their leisure hours — 75 percent of which were spent playing video and computer games. Many of these men do not have a bachelor’s degree, and the data shows they are postponing marriage, child rearing and home buying until their 30s.
Impact: The value placed on culture, flexibility, and work-life balance are increasingly important among the prime-age workforce, suggesting a shift from the traditional full-time work arrangement. To attract, retain, and reengage this new generation of talent, West Michigan employers should adopt innovative strategies to encourage flexibility in work schedules, activities, and locations.
West Michigan’s Promising Economic Outlook, Will Yield Continued Constraint on Talent
The challenges outlined above are all contributing to a shrinking full-time workforce, but they are not entirely exclusive to West Michigan. While it’s true that 26 states have now terminated enhanced unemployment benefits early and seen a modest uptick in labor force participation, the nation at large is grappling with a demographic drought and changing attitudes toward work that will transform efforts to attract, retain, and develop talent for this decade and beyond. What’s relatively unique in West Michigan is a promising economic outlook — the region is expected to gain 3 in every 4 new jobs emerging statewide over the next 10 years.
West Michigan’s occupational employment is expected to grow by 2.6 percent over the ten-year forecasting period, equating to a net gain of 20,520 jobs by the year 2028. In comparison to the nine remaining Prosperity Regions across Michigan, West Michigan’s 10-year projected employment growth rate of 2.6 percent ranks first — more than doubling expected growth for the next closest region, Southeast Michigan (1.2%). In terms of the number of jobs expected to emerge in each region, West Michigan also takes the top spot. The region is slated to gain 20,520 jobs by 2028, which stands nearly 4 times larger than the next closest Prosperity Region, Southeast Michigan, which is only expected to gain 5,440 jobs. Additionally, just half of Michigan’s ten Prosperity Regions are expected to see positive growth over the next 10 years, with the largest losses associated with Region 10: Detroit Metro (-33,480 jobs) and Region 6: East Michigan (-3,260 jobs). If you add up the number of jobs expected to emerge among the 4 remaining regions in Michigan with positive growth, the total remains nearly three times smaller than the number of jobs associated with West Michigan — meaning 72.8 percent of forecasted, positive job growth across Michigan is expected to occur in West Michigan.
The top 10 occupations expected to grow the fastest are perhaps emblematic of where the West Michigan economy is expected to go in the long run, reflecting trends in manufacturing and health care spurred by digitization and the aging of the American population. When ranked by percentage growth, six of the top ten fastest-growing occupations in our region are related to Healthcare and Social Assistance. Dental Laboratory Technicians lead in this category, with an expected growth of 33.3 percent, trailed by Home Health Aides (31.5%), Veterinary Technologists and Technicians (28.2%), Veterinarians (25.0%), and Speech-Language Pathologists (22.1%). Additionally, three production occupations round out the top ten, including CNC Machine Tool Programmers (26.7 percent), Operations Research Analysts (25.0%), and Helpers — Production Workers (23.2 percent).
Impact: Although West Michigan surpasses any other region in the state when it comes to anticipated job growth, job openings due to growth account for just a fraction (3%) of total openings forecasted through 2028. West Michigan employers should expect a bulk of job openings to arise from the need to replace workers who leave the labor force (40%) or transfer to new roles (57%), as opposed to finding workers to fill newly created jobs resulting from growth or expansion.
Recommendations
In the short-term, efforts to increase labor force participation and satiate rising employer demand should address two primary factors preventing Michigan workers from returning to work: child care and expectations of pay.
Child care access and affordability are among the leading causes preventing women from reentering and remaining in the labor force, and have likely contributed to increased preferences toward part-time work among men who took on a larger share of childcare responsibilities amidst the pandemic. Increasing the number of available child care slots, diversifying the location of providers, and reducing costs is just one method that could reengage the estimated 136,000 women who left Michigan’s workforce over the past year and half. In addition to increasing labor force participation and potential wages among women, addressing the child care crisis could also improve the share of men engaged in full-time work.
Competition against enhanced unemployed benefits has created an artificial barrier to employment especially prominent among low-wage workers, with economists reframing the current labor shortage as a “wage and benefits shortage.” Although financial reserves from previous stimulus payments may keep jobseekers afloat for a few months without alternative sources of income, terminating expanded benefits will serve to relieve wage pressure and encourage more jobseekers to accept opportunities for employment — even if potential wages don’t equate to the current maximum benefit amount of $16.55 per hour. The termination of the $300 federal expansion has been shown to accelerate economic recovery. As of June, states that retained the $300 unemployment expansion recovered 69 jobs on a per capita basis, compared to a gain of 100 jobs in states that opted out of the benefit. The top 10 states closest to returning to 100 percent of prepandemic employment all discontinued the enhanced benefit, while 14 of the 16 slowest-to-recover states were still offering the $300 federal enhancement.
Given current trends in migration, population growth, and the disappearance of low-skill jobs as a consequence of increased automation, it is critical that long-term workforce development efforts prioritize upskilling and retraining Michigan workers to meet the anticipated needs of employers. Focusing on skills is more critical than ever, and employers should place more emphasis toward hiring and developing candidates with transferrable skills as opposed to traditional two- and four-year degrees. HR leaders should partner with education and training providers to close or narrow their talent gaps by helping to align program offerings to the needs of the job market, connecting current employees with upskilling or reskilling opportunities, and providing on-the-job training for new recruits.
Companies will also need to adjust to the changing expectations of their both older talent and new recruits. Higher wages and promotions may not be the only incentives that attract new talent or drive retention among key demographics. Instead, employers should consider offering highly desired incentives like flexible schedules or unlimited paid time off, opportunities for remote work, defined pathways with opportunities for career progression or advancement, and robust recognition programs to attract new talent and retain high-performing employees. Rather than relying on traditional strategies that worked in the past, find out what motivates people in the present and adapt accordingly.
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