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Labor Force Decline Behind 14-Year Low Unemployment Rate

Frankfort, Kentucky - State Capitol Building
Henryk Sadura
Frankfort, Kentucky - State Capitol Building

The state’s 5 percent unemployment rate is the lowest it’s been in 14 years, but that's not all because of economic growth. The labor force here has declined significantly as well in recent years.

Kentucky’s civilian labor force was more than 1.9 million in September 2015, down a little less than 49,000 from a year ago and a little more than 121,000 from 2010.

The civilian labor force is an index that measures how many people are employed or currently looking for work. The unemployment rate is the percentage of unemployed people within the labor force. So if someone stops looking for a job, they’re no longer counted in the labor force and, thus, the unemployment rate.

Matthew Ruther, director of the Kentucky State Data Center, said the smaller labor force skews the unemployment rate.

“It makes the rate look better,” he said.

State officials attribute the decline in part to an increase in baby boomers retiring and exiting the labor force, and people electing to go to school to earn a degree or learn a skill.

“Compared to the nation, our proportion of people above 65 is slightly higher — that means the people who would normally retire and leave the labor force,” said Manoj Shanker, an economist with the state’s Office of Employment and Training.

Shanker said the first wave of baby boomers reached retirement age during the heart of the recession and couldn’t afford to retire. Then, when the economy recovered, they all retired at once.

“That's essentially the pent-up demand for retirement," Shanker said. "They could finally stop working and do whatever else they want to do."

But Ruther, of the Kentucky State Data Center, said labor force decline can’t just be attributed to retirement because the 18-64 age group has seen a similar workforce decline.

“These would presumably not be people who are reaching retirement age,” Ruther said. “In the context of our labor force participation rate, it’s certainly a bad thing. Because we have this group of people who aren’t working and presumably suffering because of that.”

Meanwhile, the state reported that, on average, wages have increased from an average of $653.38 per week in October 2008 to $742.31 in October 2015.

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