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 Most states have experienced sharp declines in labor force
participation since the 2007-2009 recession, but a Reuters analysis
of government data found a reversal could be underway.
The data bolsters Federal Reserve Chair Janet Yellen's view that
America has ample room to create jobs without causing uncomfortably
high inflation and it buttresses arguments for keeping interest
rates low. If Yellen is wrong, the Fed's easy money policies could
lead employers to bid up wages for scarce talent, stoking price
increases.
Anecdotal reports suggest that in many parts of the country, demand
for labor appears to be growing enough to get people who had dropped
out of the workforce to restart their job hunts.
"We are getting more job creation and we are seeing more people come
in," said Paul Turek, a labor economist with Washington state's
Employment Security Department.
Washington is one of 32 states where the participation rate rose in
the six months through April, according to the Reuters analysis.
Together, these states account for a majority of the nation's
working-age population.
 It was the second straight month where most states chalked up gains
over a six-month period.
The data covering the 50 states and the District of Columbia is
volatile, so it does not provide conclusive evidence of a bounce
back in the labor force.
But since the start of the recession in December 2007, the direction
of participation rates has been clear: they have been falling. It
has been rare in recent years for more than a handful of states to
show improved labor participation over any six-month period.
Now there's evidence the pendulum may be swinging back.
The gains are spread across the country - from states with
rebounding construction industries like Florida and Utah to those
with job growth in health care and education like West Virginia.
The Fed's Beige Book of anecdotal economic reports for May, which
was released on Wednesday, said the U.S. labor market "generally
improved," with the central bank's Kansas City district reporting
that businesses were now having to compete for workers, the
Cleveland and Chicago districts noting an upturn in demand for
temporary employees, and Atlanta pointing to a jump in the number of
workers moving from temporary to permanent jobs. It said wage
pressures remained "subdued."
Texas is another state making gains. Blessed with robust economic
growth, the speed with which unemployed Texans find jobs is nearly
twice as high as in the rest of the country, a dynamic that is
coaxing discouraged workers from the sidelines, Dallas Fed economist
Anil Kumar told Reuters. He expects a similar pattern will emerge
nationwide.
"As the economy continues to improve, at least some of the people
(will) be drawn back into the labor force," Kumar said.
Whether or not they return could be vital for the strength of the
U.S. economy, for the behavior of inflation, and for the path of
monetary policy.
'THE JOBS ARE THERE'
The U.S. jobless rate has declined steadily over the last four
years, but much of the drop was due to people giving up the hunt for
work, which means they were no longer counted as unemployed.
In April, the national participation rate fell to 62.8 percent,
revisiting a 36-year low reached late last year, although a report
on Friday is expected to show it ticked up in May. During 2007,
before the financial crisis and the recession, it was as high as
66.4 percent. [ID:nL1N0OK1NR]
Some of the decline has been due to an aging workforce and the
retirement of baby boomers, a fact that may well keep participation
from ever bouncing back to its pre-crisis level.
But some dropouts went to college and are bound to eventually
restart job hunts. Others grew frustrated at the lack of available
jobs, but may decide to try their luck again if the economy
continues to improve.
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Some prominent economists, including former White House adviser Alan
Krueger, argue that many of the folks on the margins of the labor
force are not coming back. If that is true, higher inflation, fueled
by rising wages, could come sooner than the Fed expects.
But Yellen, who took the helm at the Fed in February, has refused to
write off Americans who have suffered long bouts of unemployment or
given up the search for work entirely. She argues there is more
slack in the economy than suggested by the nation's 6.3 percent
unemployment rate, a key reason the Fed is expected to bide its time
before hiking rates. Along with the drop outs and record number of
long-term unemployed, millions are working in part-time jobs even
though they want full-time work - another fact Yellen has cited.
The state data, which can diverge from the national statistics
because of adjustments the government makes to account for seasonal
swings and other local economic factors, suggests she may be right
to wait.
In places like Portland, local officials and entrepreneurs say a
recovery in the job market is starting to gather pace.
Tech companies like business software manager Puppet Labs have been
growing quickly in the city. Puppet Labs expects to double its work
force to around 400 by the end of the year as it takes advantage of
what CEO Luke Kanies said are wage levels as much as 20 percent
lower than in hotter markets like San Francisco or Seattle.
While Oregon's labor participation rate has not gone up, officials
say they feel the groundwork is in place.
Patrick Quinton, head of the Portland Development Commission, said
the vacancy rate for commercial office space is now in the single
digits because of the rapid local expansion in Portland of companies
like accommodation booking service Airbnb and game maker Kixeye.
That, he said, is expected to trigger a wave of office building and
the creation of construction-related jobs in Portland, which
accounts for around 15 percent of the state's population.
Job creation on its own is no guarantee that the country's labor
pool will stabilize or expand. But recent research has held out some
hope by focusing on the fate of the long-term unemployed - a group
that, by historical standards, currently accounts for a
disproportionate share of the unemployed.
If they were to grow frustrated and stop looking for work, they
would drive the participation rate even lower. But research by both
Goldman Sachs and the Fed indicates they are beginning to find jobs,
gravitating, for example, to part-time work as a "stepping stone" to
full-time employment.
Marlena Sessions, head of the Workforce Development Council of
Seattle-King County, said there has been a noticeable turn in recent
months.
In the depths of the recession, her agency was able to place around
73 percent of the people who sought help into jobs, and that figure
was only 60 percent for the long-term unemployed.
Now, it is back up to the long-term average of 85 percent for all
job seekers, regardless of how long they have been out of work.
"The numbers are falling and that is great, and the jobs are there
and that is great," Sessions said.
(Reporting by Howard Schneider and Jason Lange in Washington;
Additional reporting by Ann Saphir in San Francisco; Editing by Tim
Ahmann and Martin Howell)
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