Wonky Word Wednesdays: Labor Force Participation

Montana’s current economy is strong, with mostly low unemployment rates around the state, high GDP (gross domestic product – a wonky word for a later date) levels, and an environment that supports small businesses and entrepreneurs. However, in the near future, our economy could slow as a result of workforce shortages. This brings us to today’s Wonky Word – labor force participation.

The labor force participation rate (also called workforce participation) is the percentage of people (16 years and older) who are either employed or unemployed but actively searching for work. In Montana, 63.7% of the population over 16 years old (520,000 individuals) are in the labor force. The remaining 36.3% of individuals are unemployed and not looking for work, students, men and women who choose to stay home to care for children or family members, and folks who have retired before the age of 64.

According to last year’s Labor Day Report (published by Montana’s Department of Labor and Industry), Montana has strong economic indicators like personal income, GDP, and wage growth, compared to other states. For example, Montana has the 11th lowest unemployment rate in the nation set at 4.6%, the 13th fastest growing GDP, and is ranked one of the best states in the country for entrepreneurial activities.

However, our state’s above average economic growth is expected to slow after 2015 as older Montanans approach retirement and leave the workforce. Currently, 27% of Montana’s workforce is 55 years or older and while some individuals will remain working after the traditional age of retirement, many individuals will leave the workplace. Estimates suggest that impending retirements could reduce Montana’s labor force by 137,000 workers. That is the population of Billings and Kalispell combined! Additionally, there are not enough young people entering the work force to accommodate the number of expected retirements now and into the future. Only about 113,000 Montanans are between the ages of 16 and 24. This will inevitably cause workforce shortages and slowing job growth.

While constrained labor markets can create opportunities for workers in the form of job openings and higher wages, businesses may face challenges by not being able to find enough skilled workers to produce the amount of goods or services they need to remain profitable and open.

To ensure that Montana can handle these impending retirements, our state (business and government alike) needs to consider solutions that improve technology, education, and innovation. Businesses can invest in technology that enables workers to be more productive. Educational opportunities will help develop skilled and competitive workers. And policies like paid family leave would help increase labor force participation by enabling businesses to attract and retain skilled workers. Individuals with paid family leave are more likely to return to their same employer after time off to recover from illness or care for family members and businesses avoid recruitment and training costs associated with employee turnover.

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