Despite Low Unemployment, State’s Economy Suffers From Workforce Participation Slump

Alabama’s Community Colleges’ have formed regional rapid training centers where people can access non-credit training required by industries that need workers, including skills such as repairing manufacturing machines. (Source: Alabama Community College System)

MONTGOMERY — Alabama’s 3.1% unemployment rate is the lowest in the Southeast and among the lowest in the country. State leaders have repeatedly pointed to this impressive mark as a sign of the state’s economic recovery from the throes of the COVID-19 pandemic, which saw unemployment soar to nearly 14% last year.

Yet, employers across the state are struggling to find enough workers to fill jobs, forcing some to cut back business hours or production.

Why the economic disparity? It could have to do with the number of Alabamians actually participating in the workforce, a figure that has shrunk during the COVID-19 pandemic.

Alabama’s most recent labor force participation rate, which measures those who are working or seeking work, was 56.6% for August 2021, down slightly from the pre-pandemic level of 57.9% in August 2019, according to the Alabama Department of Labor. That represents about 31,490 people exiting the state’s workforce in a two-year span.

State lawmakers, including Rep. Danny Garrett, R-Trussville, are digging into the numbers to determine why there are so many unfilled jobs in the state. He says that, while the unemployment rate is low, it doesn’t tell the whole story because it doesn’t reflect the number of able-bodied residents who, for whatever reason, have chosen not to participate in the workforce.

“My concern is that the Department of Labor is really focused on dealing with the unemployment aspect, and the Department of Commerce is focused on bringing new jobs into the state, but who is looking at this labor participation,” Garrett told Alabama Daily News. “There’s really not a champion for that at this moment.”

Tara Hutchison, communications director for the Alabama Department of Labor, said the labor shortage is nothing new for Alabama.

“People need to remember that, despite the pandemic, that problem never really went away, and it’s been exacerbated by the pandemic,” Hutchison said. “The participation rate in Alabama only fluctuates 1 or 2 percentage points over a whole year and the best rate in recent years was seen in 2010 when it stayed around 59%.”

Alabama’s 56.6% workforce participation rate accounts for 2,138,688 residents who are currently employed or unemployed and looking for work. Neighboring states have similar participation rates: Mississippi at 55.9%; Florida at 59%; Tennessee at 60.6%; and Georgia at 61.6%.

Labor shortages are also a national trend with the U.S. labor force participation rate in decline for more than a decade, according to the U.S. Bureau of Labor Statistics.

 Competing Metrics

Hutchison and ADOL push back on the notion that the workforce participation rate is the prevailing economic indicator, saying it doesn’t really show who isn’t working or why they are not.

“You can’t really get to the demographics of it,” Hutchinson said. “It’s really hard to pinpoint what is actually going on and the number fluctuates less than a percentage point over decades.”

The participation rate doesn’t take into account the population in Alabama that has never been labeled as “working” and yet does work such as stay-at-home parenting or caregiving, she said.

Instead, ADOL maintains that the state’s unemployment rate and the monthly jobs report paint a more accurate picture of how many people are working in the state.

The number of unemployed Alabamians in August was 69,005, which means they don’t have a job and are looking for one. The rate is calculated with data from the Current Population Survey conducted by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics every month.

Another survey conducted by ADOL every month asks 20,000 of the state’s employers how many positions their business is currently supporting. The most recent numbers showed 2,024,400 jobs supported in August 2021, down almost 74,000 from the pre-pandemic peak of 2,098,300 in November 2019.

Why have so many left the workforce?

Hutchison cited several reasons for a decline in labor participation, including lingering fears of COVID-19, people moving onto other industries, the many COVID-related deaths seen these past two years, early retirements due to the pandemic and inability to access care for children or aging parents.

“Additionally, some workers are not willing to move to areas of the state with more available jobs due to family concerns, salary concerns, or a number of other reasons,” Hutchison said.

Impact on Small Business 

Rosemary Elebash, state director for the National Federation of Independent Business, says small businesses across every sector in the state are facing a labor shortage.

A recent survey of businesses with 50 or fewer employees showed 91% with a job opening and 93% of those could not find a qualified applicant for the open position.

She said disruptions in schooling and child care are among the reasons qualified workers aren’t applying.

“We’re at a point now where people have to decide if they’re going to work or if they have child care issues,” Elebash said. “It will depend whether the school is open this week or closed for 10 days, and so this back and forth has created a hardship for working parents.”

Elebash said throughout the pandemic businesses have been willing to adapt or change to workers’ needs.

In a survey conducted in June, 83% of respondents said they had increased salary, benefits, included paid leave, increased health insurance, vacation and sign-on bonuses this year.

Elebash did note that the worker shortage could also be a sign that more workers are going back to school to earn more advanced degrees or skill sets to reach a better-paying job.

She pointed to the Alabama Community College System’s recent rollout of its regional rapid training centers that provide short-term, customized, non-credit training for businesses and industries depending on their specific needs in that area.

‘Benefits Cliff’ 

Ed Castile, director of the Alabama Industrial Development Training division of the Department of Commerce, agrees that child care and transportation issues were some of the major roadblocks to getting people back into the workforce. He also cited the “benefits cliff,” which occurs when people are worried they could lose the public assistance they’ve depended on once they start earning more income.

Castile said that’s why his department has partnered with the Federal Reserve Bank of Atlanta to roll out the Dashboard for Alabamians to Visualize Income Determinations, or David, to help people understand how they can move off of assistance programs with their expected income increases.

Several Republican leaders in Alabama had pointed to the extra $300 per month for individuals’ unemployment benefits from the federal government as a cause for the labor shortage. Ivey ended Alabama’s participation in the additional benefits in June, saying it was “contributing to a labor shortage that is compromising the continuation of our economic recovery.”

Yet workforce issues persist.

Another new federal benefit stemming from the pandemic is the Child Tax Credit, which was expanded under the American Rescue Plan Act enacted in March. The change increased the tax credit from $2,000 to $3,000 per child for children over six and $3,600 for children under six. It also spread the payments out by month instead of at tax time, meaning most low- and middle-income parents see between $250 and $300 per child, per month based on a progressive income scale.

Garrett, who chairs the Alabama Small Business Council, noted that the extra federal benefits were probably a contributing reason for the lack of workers returning. But there are other factors at play, he said, especially since the extra unemployment payments have stopped.

“This is a huge issue and long term it definitely could be devastating for our state economy,” Garrett said.

Alabama Arise published a report in time for Labor Day this year detailing some of its own recommendations for how to boost the state’s workforce participation.

In the report, Arise emphasizes the need for better options for child care, transportation and job benefits. It also suggests that Alabama expand Medicaid to provide proper health services to jump-start the state’s economy, as well as improve the state’s COVID-19 vaccination rate by dispelling misinformation about the virus and vaccine.

What’s Being Done

Before the pandemic, Gov. Kay Ivey had made improving Alabama’s workforce participation rate a top priority, rolling out her “Success Plus” initiative that aimed to get 500,000 newly credentialed people into the workforce by 2025.

Now, after a year and a half of economic upheaval, her workforce development team says that goal is even more important.

Castile said the state is still at around 45% of reaching the 500,000 goal, but new workforce initiatives that began this summer will help boost those numbers.

He pointed to the Alabama Credential Registry, which provides a central location where all employers and education and training providers can publish certificates, licenses, traditional degrees and non-degree credentials offered in Alabama.

The registry will also be followed in early 2022 by the Alabama Skills-Based Job Description Generator and Employer Portal, which will allow employers to create customized job descriptions for jobs in their firms.

The Alabama College and Career Exploration Tool is also being developed, which will allow job seekers to develop verified resumes and to link directly to skills-based job descriptions generated by employers. Something of a for employers and job seekers.

“At the end of the day I do think we’re winning the battle and I do think we’re winning the war,” Castile said.  “But every day there is a new and different battle in how we approach it and how we succeed, and that’s going to be the reason we make it.”