Author: Andrew Berger-Gross
Welcome to the June 2024 edition of NC Economy Watch: an update on what’s happening in the North Carolina economy and what it means for you, brought to you by the Labor & Economic Analysis Division (LEAD) of the NC Department of Commerce.
In this edition of NC Economy Watch, we analyze trends in North Carolina’s labor force participation rate. Labor force participation has been trending downward in North Carolina and nationwide for decades, driven primarily by shifting demographics. While the participation rate for younger workers in North Carolina has increased in recent years, the overall statewide labor force participation rate is likely to continue declining because our population is getting older, and older people are more likely to be retired.
Understanding North Carolina’s Labor Force Participation Rate
The numbers published in North Carolina’s monthly employment data release tell a mostly positive story about our state’s economic recovery: at the latest reading, there were nearly 4.9 million jobs in North Carolina, and our unemployment rate held near an all-time low at 3.5 percent. However, North Carolina’s labor force participation rate, one of our most closely followed labor market indicators, has yet to recover to its pre-pandemic level. Is this a trend we should be concerned about?
The labor force participation rate measures how much of the adult population is either working or actively searching for work.1 The most important thing to keep in mind when analyzing recent labor force participation trends is that declining participation rates are hardly a recent phenomenon; labor force participation has been trending downward in North Carolina and nationwide for decades.
Another thing to keep in mind is that the participation rate is heavily influenced by demographics. All individuals aged 16 and above are included in the calculation, including those in demographic groups that generally have low participation rates. For example, individuals aged 55+ are much more likely to be retired than their younger counterparts. The share of North Carolina’s population aged 55+ increased from 27% in 2001 to 38% in 2023 [Figure 1]. As our population gets older, more individuals are approaching retirement age, leading to a lower labor force participation rate overall.
Figure 1
The statewide labor force participation rate is also affected by participation trends within each of these age groups. While older individuals are participating in the labor force at a slightly higher rate than in 2001, participation has declined for younger age groups [Figure 2]. The decline among those aged 16-24 is particularly notable, with their participation rate falling from 68% in 2001 to 58% in 2023.
Figure 2
Shifts in the demographic composition of our population are the most important driver of statewide labor force trends, accounting for two-thirds of the decline in North Carolina’s labor force participation rate since 2001 [Figure 3].
Figure 3
This analysis shows why readers should exercise caution when interpreting labor force participation trends. Unlike economic indicators like the unemployment rate, which tend to move up-and-down with the broader business cycle, trends in labor force participation are mostly driven by non-economic factors, like the aging of the population. A low labor force participation rate doesn’t mean that we’re stuck in an economic recession; rather, it’s primarily the result of demographic shifts which have little to do with short-term movements in the economy.
That said, a low labor force participation rate isn’t necessarily a good thing for the economy, either. North Carolina needs a growing labor force to fuel its expanding economy. Declining labor force participation, along with slowing population growth, will weigh on North Carolina’s economic prospects in the years to come. Recent developments among our youngest workers offer some cause for optimism: the labor force participation rate of North Carolinians aged 16-to-24 increased from 54% in 2019 to 58% in 2023, partially reversing a decades-long trend of young people enrolling in school full-time and opting out of the labor force. But even if young people continue to participate at higher rates, North Carolina’s overall labor force participation rate is likely to decline further because our population is getting older, and older people are more likely to be retired.
For inquiries and requests, please contact:
Meihui Bodane, Assistant Secretary for Policy, Research and Strategy
NC Department of Commerce, Labor & Economic Analysis Division (LEAD)
mbodane@commerce.nc.gov
1Specifically, the US Bureau of Labor Statistics calculates the labor force participation rate as the labor force level divided by the age 16+ civilian noninstitutionalized population.