In a Nutshell

• Michigan’s unemployment rate declined to 4.6 percent in September, but total employment is still 4.8 percent below its pre-pandemic level
• Job losses are primarily tied to the 190,000 Michigan workers who are no longer looking for jobs and thus are not counted in the unemployment rate
• Re-engaging the subset of those 190,000 former workers who may be ready to come back to work will be critical in improving Michigan’s labor market

New data released by the Michigan Department of Technology, Management and Budget shows that Michigan’s unemployment rate in September fell to 4.6 percent; its lowest point since March 2020 before the initial impacts of the COVID-19 pandemic were felt. The national rate also fell to 4.8 percent.

Both figures would, on their face, suggest that labor markets are moving closer to pre-pandemic norms. However, Michigan’s improving unemployment rate fails to tell the full story regarding Michigan’s employment picture, which is much less rosy.

There were about 226,000 fewer persons employed during September 2021 than there were in February 2020, the month prior to the onset of the pandemic.  That represents a 4.8 percent decline in total employment within the state from the pre-pandemic level – which translates into a significant loss in potential disposable income to help buffer the state’s economic recovery. Our deep dive into the data reveals the core problem: a shrinking labor force.

Michigan’s Labor Market is Recovery, but Growth is Sluggish

Nationally, employment trends are similar, but Michigan’s employment growth has been even more sluggish than the country as a whole, particularly during the last 12 months. The chart below summarizes the pandemic-related employment decline in both Michigan and the United States; the percentages displayed reflect the change in total employment experienced over time from the pre-pandemic level in February 2020. It shows the massive initial job losses in April 2020 (26.2 percent in Michigan and 16 percent nationwide) arising from the public health emergency declaration.  Employment then rebounded in the summer of 2020 before settling back into a slower growth trend.

Percent Change in Total Employment from February 2020

Source: Research Council analysis of U.S. Department of Labor data; data are seasonally-adjusted

By September 2020, Michigan’s employment decline had improved to 6.2 percent; slightly lower than the 7.0 percent decline for the United States as a whole.  But in the last 12 months, employment growth at the national level has significantly outpaced growth in Michigan.  As a result, Michigan’s pandemic-related employment decline now stands at 4.8 percent, higher than the 3.2 percent decline that remains nationwide.  Michigan’s employment decline from pre-pandemic levels is now the 14^th highest among the fifty states and the District of Columbia.

Not surprisingly, the employment losses are not evenly distributed around the state.  Some areas of Michigan have already fully recovered the job losses experienced early in the pandemic.  Looking at county-level data for September 2021, nine Northern Michigan counties (Alpena, Chippewa, Delta, Houghton, Keweenaw, Missaukee, Ontonagon, Osceola, and Wexford) are seeing employment that now exceeds its February 2020 level. In contrast, 18 counties have seen employment declines of 5 percent or more.  And the three counties with the largest declines are all relatively populous urban counties: Genesee (down 8.2 percent), Muskegon (down 8.0 percent); and Saginaw (down 6.9 percent).

Percent Change in Employment by County (Feb 2020 to Sept 2021)

Source: Research Council calculations based on U.S. Bureau of Labor Statistics data; map created with QGIS open-source mapping software

190,000 Michigan Workers Have Left the Labor Force Since the Start of the Pandemic

The data raise an important question: how is Michigan’s unemployment rate falling at the same time the state is experiencing these significant declines in employment?  The answer: a large number of people who were working in February 2020 have simply stopped looking for work.  And those not seeking work aren’t included in the calculation of the official unemployment rate.

Unemployment rates are calculated through household survey data collected by the U.S Census Bureau. Persons 16 years of age and older are asked about their employment status each month. The table below summarizes the survey data for February 2020 and September 2021 for Michigan.  As already noted, total employment in Michigan declined by 226,000 persons over that period.  But total unemployment only rose by 36,000 persons (16 percent of the decline in employment).  The great majority of the employment decline is attributable to the 190,000 Michiganders who were employed in February 2020 and have since left the workforce altogether. Only a fraction reflects a shift from people who were employed but lost their jobs and are now actively looking for work. 

Michigan Employment (in thousands)

Source: U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics; seasonally-adjusted data.

What has caused so many to leave the labor force?  The federal survey data point to enduring concerns related to COVID-19 as an important factor.  Beginning last year, the Census Bureau began to include new questions in the survey to help gauge the impact of the pandemic.  In the September data, 1.6 percent of all working age persons nationally that were not seeking work indicated that they did not look for work due to the COVID-19 pandemic.  Among prime working age adults (aged 25-54) that percentage was even higher: 3.6 percent.  Those are not huge percentages, but if you apply the national estimates to Michigan’s working age population, that still accounts for around 1 in 3 of the 190,000 Michigan residents who have left the workforce.

Clearly, other factors are in play as well with some research suggesting that parental responsibilities and difficulty accessing childcare have contributed to the decline, especially for women.  There is also some evidence that workers are re-assessing their career goals, leading to an uptick in voluntary job departures and retirements among older workers.  

How Can Public Policy Help Improve Labor Force Participation?

For policymakers, the data reiterate that the COVID-19 pandemic, beyond imposing a very serious public health threat, also continues to have significant economic consequences to the state and national economies. Policymakers should remain steadfast in promoting effective public health regulations and vaccination strategies to move as close to “herd immunity” as possible. This will not only protect the public but help truly restore the productive capacity of the economy to the greatest extent possible.

Beyond the pandemic, though, as Michiganders rethink what they want out of their careers, the data also emphasize the importance of effective workforce development programs focused on addressing barriers to employment for low- and middle-skilled workers looking to move up the economic ladder.  These barriers have always existed, but many have been exacerbated by the pandemic. Since pandemic-related job losses have been concentrated in lower-wage sectors that employ many of these workers, they also make up a large segment of those who have left the workforce.

Our 2019 report pointed to the challenges presented by  shrinking labor force participation in Michigan, even before the pandemic, and suggested strategies to ensure the state’s workforce programs better serve these lower-skilled workers.

There is evidence that those strategies have gained legislative traction as the recently enacted state budget includes new college financial aid programs targeting non-traditional students over 25 years of age.  Further, the budget expands funding for state-subsidized childcare, making it more affordable to lower-income families and addressing another significant barrier to full labor force participation. But more may be needed to assist this low-income, working population that is often a secondary priority within current workforce development programs. The state should look to tap some of the $11 billion in available federal and state funding to address this need.

To be sure, Michigan’s employment picture continues to slowly improve, and a lower unemployment rate is generally good news.  But that decline masks the more serious challenge that remains: how to re-engage with those 190,000 Michigan working age residents who have left the labor market altogether and may be open to returning to the right job. Michigan policymakers should take note.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the Citizens Research Council of Michigan is properly cited.