State of Working West Virginia 2015

November 9, 2015 by and

SWWV 2015 coverThis report is the eighth in an annual series that examines the state of West Virginia’s economy. While previous editions examined data on employment, income, productivity, job quality and other aspects of the economy as they impact working people, this issue is an in-depth look at one specific economic measure – West Virginia’s labor force participation rate. Read PDF.

The labor force participation rate (LFPR) is the measure of people 16 years or older either working or seeking work, expressed as a share of the adult population. Labor force participation is a complementary measure of labor market conditions to the conventional unemployment rate. The LFPR captures the share of the total adult population that is available to work, whereas the unemployment rate captures the share of the labor force that is unable to obtain employment at a given point in time. Labor force participation varies across demographic characteristics such as age, gender, and race, and can be affected by numerous economic characteristics and public policies. A healthy LFPR is a key driver of a society’s economic output per capita and overall standard of living in the long run.

Nationally, labor force participation peaked in the early 2000s at 67 percent, and has been falling since. The nation’s current rate of 62.9 percent is its lowest since 1977. Historically, West Virginia has had the lowest labor force participation rate in the United States. West Virginia has ranked last among the 50 states every year since 1976, and the state’s labor force participation rate has never lagged the nation by fewer than nine percentage points over this period. In 2014, West Virginia’s labor force participation rate stood at 53 percent, compared to the national rate of 63 percent.

West Virginia shares its low labor force participation rate with much of the Appalachian region. For the 2008-2012 time period, the prime-age (ages 25-54) labor force participation rate in the Appalachian region was 74 percent, compared to the national rate of 78 percent. Only 35 of the 420 Appalachian-region counties had a prime age labor force participation rate above the national rate, while 46 counties had a prime-age rate below 60 percent. Labor force participation rates in the Appalachian region are lowest in rural areas and in Central Appalachia, which contains much of West Virginia.

A number of factors have contributed to the general decline in labor force participation nationally. Consider long-term demographic trends: Aaronson (2012) estimates that just under half of the decline in labor force participation since 1999 is due to shifting demographics, particularly the overall aging population and the retirement of the baby-boom generation. These trends are projected to persist beyond the next decade as the baby-boom generation continues to retire. Men and women over the age of 65 are much less likely to work compared to men and women aged 25-64, and naturally labor force participation declines as the population ages.

The 2007-2009 recession and weak recovery have also contributed to the falling labor force participation rate. An ongoing weak job market can discourage unemployed men and women who cannot find work, driving them to quit looking for work altogether and thereby exit the labor force – termed the discouraged worker phenomenon. The labor force participation rate for prime-age workers fell by 1.5 percentage points between 2007 and 2012, which has been attributed primarily to this phenomenon.

A weak economy can also affect labor force participation by preventing workers from ever joining the labor force. Nichols and Linder (2013) estimate that the drop in labor force participation during and after the recent recession has also been driven by a decline in labor force entry rates.

Returning specifically to West Virginia, a few studies have focused on uncovering the reasons for West Virginia’s, and its Appalachian neighbor’s, low levels of labor force participation. In examining Kentucky data, Berger (1989) found that the primary contributor to Kentucky experiencing employment-to-population ratios – which are related to labor force participation rates – below the national average was relatively low levels of educational attainment in Kentucky in comparison to other states. Other factors included differences in industry structure and an overall weak economy.

A similar analysis yielded different results for West Virginia. Dorsey (1991) concluded that West Virginia’s low rate of labor force participation cannot be attributed to economic or demographic factors, and instead is probably explained by its Appalachian culture, a preference for working informally outside of traditional markets, and high levels of federal disability benefits. Using more sophistical econometric methods compared to Dorsey, Isserman and Rephann (1993) found no statistical evidence of an Appalachian cultural effect. They further concluded that the county-level labor force participation rates in Appalachia were no different from the U.S. average when controlling for demographic and economic conditions.

This study has three components. Section One compares of trends in labor force participation in West Virginia and in the nation and examines how labor force participation in West Virginia varies by demographic, socioeconomic, and health factors. Section Two provides a more in-depth evaluation of the determinants of labor force participation and their contribution to the deviation of West Virginia’s LFPR rate from the national average. Section Three provides various policy solutions to improve labor force participation.

Key Findings

  • Labor force participation in West Virginia, and in the nation, rose substantially over the latter half of the 20th century, but has declined since 2000.
  • Despite broad movements in labor force participation over the last six decades, labor force participation in West Virginia has lagged the nation by a consistent margin.
  • Labor force participation varies widely across West Virginia’s 55 counties and tends to be lowest in the southern part of the state.
  • Labor force participation in West Virginia lags the nation across all age groups. Labor force participation among prime-age workers (ages 25-54) in West Virginia is also the lowest among the 50 states, indicating that the fact that West Virginia has an older population cannot solely explain the state’s labor force participation deficit.
  • Of the 700,000 West Virginians who are not in the labor force, only 39 percent are age 65 or older. In contrast, 15 percent of labor force non-participants are between 15 and 24 and 27 percent are of prime working age. Policies that target men of women in these age groups have the most potential to improve labor force participation.
  • Data suggest that labor force participation increases rapidly with higher levels of education. This finding, coupled with low rates of educational attainment in the state, suggests that effective efforts to improve high school completion and the attainment of a college education would likely be fruitful in enhancing labor force participation.
  • Data for both the nation and West Virginia suggest that health is an important determinant of labor force participation. This finding, coupled with the fact that West Virginia suffers from poor health outcomes, suggests that effective policies to improve access to health care and encourage a healthy lifestyle would improve labor force participation.
  • Men and women with a disability that limits or prevents them from working comprise 44 percent of those not in the labor force (prime age). This suggests that effective efforts to improve disability outcomes and to promote efforts to match the disabled with more physically-appropriate work might substantially improve labor force participation.
  • A statistical analysis shows that the factors that play the most important role in explaining why West Virginia has a lower labor force participation rate than the U.S. average are that the state’s population is older, has completed less formal education and is in relatively poor health.
  • Policies that could improve West Virginia’s low levels of labor force participation include enacting a state earned income tax credit, enhancing childcare access, and increasing access to higher education.