© Copyright 1999 by the Wyoming Department of Employment, Research & Planning

Wyoming's Labor Force Participation Rate:
What does it imply about Labor Supply in the State?

by: David Bullard , Economist

"Wyoming's labor force participation rate has been well above the national average for the past 20 years."

Several mountain and plains states have been experiencing tight labor markets in recent years, but so far, Wyoming has not faced the wage pressures and recruitment difficulties characterizing some labor markets in states south and east of us. This article examines the labor force participation rate in an attempt to assess the state of Wyoming’s labor market. It finds that Wyoming’s labor force participation rate has been consistently higher than the U.S. average, but is currently lower than other states in the region. At the state level, high participation rates are associated with high levels of education and agricultural self-employment. It appears that Wyoming’s participation rate could go higher, and labor force could increase without significant upward pressure on wages.

The labor force participation rate is defined as the percentage of the civilian noninstitutional population age 16 and over that is in the labor force. Labor force is the sum of the employed and unemployed, or in other words, the number of people either working or available and looking for work. While a high participation rate is generally seen as a sign of a healthy economy, in conjunction with a low unemployment rate, it also suggests a tight labor market. Thus, if a state has persistently low unemployment and a high participation rate, employers will probably have difficulty hiring additional workers without bidding up wages.

Figure 1 shows a 20-year history of the labor force participation rate in Wyoming and the United States. Studying Figure 1 reveals two facts: first, Wyoming’s participation rate has consistently been above the U.S. participation rate. Second, the U.S. participation rate has been increasing steadily over the last 20 years.

Why has the labor force participation rate for the U.S. been increasing? Figure 2 shows the U.S. participation rate broken out by gender. It is clear that men’s participation rates have fallen while women’s rates have increased. Thus, much of the increase in the U.S. participation rate is due to greater participation by women in formal labor market activities.

Why is Wyoming’s participation rate higher than the U.S. rate? One possibility is that the demographic composition of Wyoming’s population could be skewed towards age-groups which tend to have higher participation rates. Another possibility is that Wyoming residents in all age groups could have different characteristics or face different labor market opportunities than the U.S. population as a whole.

Table 1 provides labor force participation rates by age-group and gender for the United States. People in their prime working years (age 25 to 54) have much higher participation rates than younger or older people. Table 2 contains similar figures for Wyoming in 1997. Comparing Tables 1 and 2 reveals that when both genders are combined, Wyoming has higher labor force participation rates in every age category except 25 to 34 year olds. Men in Wyoming have higher participation rates in every age category. Wyoming women have higher participation rates than U.S. women in four age groups and lower participation rates in two age groups.

Table 3 shows the age distribution of the civilian non-institutional population in the United States and Wyoming. Comparing the column percent figures for Wyoming and the U.S. reveals that in many respects Wyoming has a similar age structure to the U.S. For example, in Wyoming, 56.7 percent of the civilian noninstitutional population is in the prime working years of 25 to 54. The same figure for the U.S. is 57.5 percent, less than one percentage point different. One noticeable difference, however, is found when looking at the 20 to 34 age group. Only 25.9 percent of Wyoming’s population is found in this age group while 28.1 percent of the nation’s population is in this group. A possible explanation for this difference in younger age groups could be the out-migration that Wyoming has experienced during the past three years1.

Thus, both explanations of Wyoming’s high participation rates appear consistent with the data. Wyoming’s population does have a different age structure than the United States, but Wyoming also has higher participation rates within most of the demographic groups.

How does Wyoming’s participation rate compare to other states’ rates? Table 4 shows that Wyoming ranked 14th in 1998 annual average participation rates. Several neighboring states, including South Dakota, Nebraska, Colorado, Idaho and Utah ranked above Wyoming, while Montana ranked below. Noting that states in the region are ranked near Wyoming seems to give anecdotal support to the second hypothesis about why Wyoming’s participation rate is higher than the national average. As noted in an earlier Wyoming Labor Force Trends article about multiple jobholding2, the states in this region share a common history that may be reflected in such labor market activity as high participation rates.

A linear regression model was used in an attempt to explain differences in labor force participation rates across states. The 1998 annual average participation rate was the dependent variable. The model summarized in Table 5 explains over 60 percent of the variation in participation rates across states (R2=.628). The independent variables included in the model are: the percent of high school graduates, the percent of college graduates and the percent of households with self-employment farm income.

Data from the Current Population Survey (CPS) suggest a positive correlation between educational attainment and labor force participation (see Table 6). The higher a person’s level of education, the more likely he or she is to be in the labor force. The regression model shows that this relationship also holds at the state level. States whose residents have completed high school and college tend to have higher participation rates. Figure 3 is a scatterplot of the percent of state residents age 25 and over with at least a high school diploma and the states' labor force participation rates. Notice how the states seem to group around the regression line, suggesting a positive relationship.

Thus, Wyoming’s high labor force participation rate appears to be associated with factors that make the state similar to neighboring states, but different from many other states and the nation as a whole. High levels of education and opportunities for agricultural self-employment in the economy combine to give Wyoming its labor force participation rate.

What can we expect from the participation rate in the near future? Figure 1 shows that the Wyoming participation rate peaked in 1983 at 72.4 percent. Its lowest level (68.7%) was during the "bust" in 1987. Generally, the participation rate has stayed between 70 and 72 percent. The 1998 participation rate was 70.3 percent. If the civilian noninstitutional population age 16 and over were to stay at its current level of 367,000 and participation increased by one percentage point to 71.3 percent, there would be 3,671 more individuals in the labor force in 1999. If participation increased two percentage points to 72.3 percent, this would translate into an increase of 7,341 in the labor force. Holding population constant, labor force could increase by 2.8 percent in 1999.

However, in any discussion of the labor force, population shouldn’t be held constant. In the past few years, Wyoming’s civilian noninstitutional population has been increasing by about 3,000 people each year. Thus, in projecting the 1999 labor force, it is reasonable to assume a civilian noninstitutional population of 370,000. Continuing the example in the previous paragraph, an increase in participation of one percentage point would lead to an increase in labor force of 5,810 individuals. Similarly, an increase in participation of two percentage points would translate into 9,510 more individuals in the labor force. If population continues to increase, we could expect labor force to go up 3.7 percent in 1999.

Traditional economic theory suggests that the labor supply curve is upward-sloping. That is, as wages increase, more individuals will enter the labor force. Recently, Unemployment Insurance (UI) covered employment data show significant increases in the average wage (1998 fourth quarter data show an increase in the average weekly wage of 4.9 percent3). Economic theory suggests that such increases will tend to draw more individuals into the labor force. Thus, if wages continue to increase, actual participation rates may go even higher than suggested in the previous paragraph.

Wyoming’s labor force participation rate has been well above the national average for the past 20 years. Compared with other states, Wyoming ranks 14th out of 50. Wyoming’s high participation rate may be related to high levels of educational attainment and numerous opportunities for agricultural self-employment. From a geographic and historical context, it seems reasonable to expect Wyoming’s participation rate to increase even further in the next few years, especially if wages continue to outpace inflation. Thus, it appears that there is room for growth in Wyoming’s labor force.

1 According to Census Bureau figures, Wyoming experienced a negative net domestic migration of 2,204 individuals from July 1997-1998 and 2,966 individuals from July 1996-1997. Similarly, Wyoming’s net domestic migration in 1995 was also negative.

2 Tom Gallagher, "Multiple Jobholding: The Measurement Issue," Wyoming Labor Force Trends, December 1997, p. 5.

3 Gayle Edlin, "Covered Employment and Wages for Fourth Quarter 1998," Wyoming Labor Force Trends, July 1999, pp. 12-13.

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