New Research from DEED Takes a Deeper Dive on Labor Force Participation

St. Paul – A new report from the Labor Market Information Office in the Minnesota Department of Employment and Economic Development (DEED) takes a closer look at the short-term pandemic and long-term demographic impacts on labor force participation.

Increasing labor force participation could help ease hiring challenges resulting from our historically tight labor market, where there are roughly four job openings for every person looking for work. Tight labor markets typically increase labor force participation, and labor force participation has been steadily increasing in Minnesota since its low during the depths of the pandemic.

Labor Market Analyst Anthony Schaffhauser’s research takes a closer look at the many factors impacting labor force participation and seeks to answer the question of whether the larger overall trend toward lower labor force participation set in motion in the early 2000s by demographic changes is likely to continue.

“Minnesota is a hard-working state with labor force participation rates that are consistently far higher than the national average,” said DEED Commissioner Steve Grove. “Yet like every state, our participation took a hit during the pandemic. This research helps us better understand these trends - and reveals opportunities for both business and government to grow participation in various sectors of the economy.”

Schaffhauser’s research could help employers, workforce development specialists, educators and others explore ways that labor force participation could be increased, working within the constraints of an aging population.

Some measures could include increased flexibility to allow more high school age students to enter the workforce, and ensuring enough affordable, high-quality child care for parents of young children. In addition, an expansion of work-based learning opportunities would allow people to earn while they learn, which would help people acquire needed skills while still earning a paycheck. Finally, employers could take steps to urge recent retirees to “unretire.”

Minnesota’s Labor Force Participation Rate (LFPR) was 68.2% as of August 2022, the latest period for which data is currently available. Immediately prior to the pandemic, Minnesota’s LFPR reached a high of 70.8%. It is important to note that Minnesota’s LFPR of 68.2% remains well above the national average of 62.4%. Minnesota’s rate has been higher than the national average since LFPR started being tracked at a state level in 1976.

While an older population usually leads to a lower LFPR, the decline in LFPR is not due entirely to demographic change. COVID-19 has prevented some people from returning to work due to health impacts, such as Long COVID, or due to health concerns among those at higher risk of complications if they contract the virus. In addition, COVID dramatically slowed immigration from other countries, thwarting people who otherwise would have been expected to join the workforce here. Dramatically reduced immigration did have an impact on labor force participation, because foreign-born residents have a higher LFPR than native-born residents; therefore, more foreign-born residents increase the LFPR. Just over 50% of Minnesota’s recent labor force growth has been driven by foreign-born workers.

Read Will a Record-Setting Hot Labor Market Bring Labor Force Participation Back to Pre-Pandemic Levels? in the current edition of Minnesota Economic Trends.

DEED is the state’s principal economic development agency, promoting business recruitment, expansion and retention, workforce development, international trade and community development. For more details about the agency and its services, visit the DEED website, the JoinUsMn.com website, or follow us on Twitter.