Allegheny Institute: Why the Surge in Pittsburg Region’s Labor Force?

The Pittsburgh MSA (metro area) labor force showed surprisingly strong gains in 2008 following a four year period (2003 to 2007) in which the region’s labor force actually fell by over 15,000, dropping from 1,212,800 to 1,197,260. In fact, the 2007 reading was still well below the 1998 level. Then, inexplicably in 2008, Bureau of Labor Statistics data show the MSA labor force posting large year to year gains as measured by monthly data compared to twelve months earlier. For instance, year over year gains in several months exceeded 20,000 and reached as high as 28,000, a stunning one year rise of 2.3 percent. Obviously, such a dramatic change in growth prompts the question: Why is this happening?

There are several possibilities. First, is the data correct or will it be subject to a major downward revision when the March benchmark report is released? That happened a couple of years ago when an entire year’s job growth disappeared in the revised numbers. Second, have the earlier years’ labor force numbers been underestimated and the 2008 numbers represent a catching up to the true picture? And, to follow that up, if labor force was higher in earlier years, was employment also higher or was the unemployment rate greater than originally reported? If the data are correct and do not get significantly revised, then it is clear that something dramatic and
newsworthy is happening in the region’s labor force.

Labor force is calculated as the sum of people working and those who are actively looking for work. The Bureau of Labor Statistics uses a sampling technique to arrive at estimates of the fractions of the population that are working or unemployed but looking for work. Then they use those fractions and the current estimate of civilian population of working age in the geographic area to arrive at numbers for total labor force, employed and unemployed.

Clearly, this procedure presents us with several possibilities as to the cause of the big jump in labor force in 2008. One, the population estimate being used in the 2008 calculations was in fact much higher than those of previous years. But that explanation would strain credulity since the region’s population has been declining for a long time with Allegheny County leading the way by losing thousands of people each year as a result of net out-migration. Even if population loss has been arrested, that would not produce the big jump in labor force the region and each county experienced in 2008.

Bear in mind that the labor force count is roughly one half the total population in this region. Thus, a 20,000 to 25,000 jump in labor force caused by population gains would imply a 40,000 to 50,000 rise in the total population. Such an increase would surely be reflected in housing demand, retail sales and eating out spending in the region. Employment changes in those sectors during 2008 do not support the notion that population rose sharply during the year.

Finally, if population has indeed moved sharply higher, then it must be due to large scale in-migration. It cannot be the result of a big rise in births relative to deaths because those additional births won’t be entering the labor force for at least 16 years. A reversal of the longstanding migration pattern of the magnitude necessary to grow the labor force by two percent a year is possible, but not very likely.

A second possible explanation for the sharp labor force rise would be a surge in the labor force participation rate. The participation rate is simply the number in the labor force divided by the working age civilian population. Thus, if folks who were previously neither working nor looking for work decide to look for work or actually become employed in large numbers and there has been no appreciable change in population, then the participation rate would move sharply higher and the reported numbers for the labor force would leap upwards. A substantial short term rise in the labor force participation rate would raise its own "why" questions.

It is credible that in the early stages of job losses or income cutbacks in a
softening economy one or more additional family members of working age would enter the labor force to supplement family income. Normally, however, as a recession deepens, the labor force will begin to drop as people become discouraged and quit looking for a job. If the 2008 and prior year labor force numbers currently being reported for the region are accurate, then logic dictates there must have been a substantial increase in the participation rate.

We cannot know for sure what has happened until the benchmark data are available in March, but assuming there has been a large uptick in the participation rate that, in itself, would be a signal that a faltering economy is causing families problems in sustaining the income needed to meet living costs debt obligations.

Obviously, an explanation of 2008’s jump in labor force is needed before we can say whether or not the region has finally shed its long running labor market stagnation. Maybe the Bureau of Labor Statistics will bring good news in the benchmark data.

Jake Haulk, Ph.D., President

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