Where did all the workers go?


050214 thumb notworkingBY ERIC FRUITS | OB BLOGGER

Something has happened to Oregon over the past decade to cause steep declines in incomes and willingness to work. 

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050214 notworkingBY ERIC FRUITS | OB BLOGGER

Oregon’s March job growth was the strongest in nearly a decade. The state Employment Department reports that employers added about 7,500 jobs statewide last month, which was the biggest monthly gain since November 2005. The improving economy looks to be luring people back into the labor force, with more than 7,000 added to the labor force.

The recent good news, however, belies deeper long run troubles in Oregon employment and incomes.

The sketch comedy show Portlandia gave the city a reputation as the place where young people come to retire. The figure below shows that there may be a grain of truth in that assessment.

GRAPH1Until the mid 1990s, Oregon had a go-getter workforce. Labor force participation was about 2 percentage points higher than the U.S. average. Our above average unemployment rate was as much because of people wanting to work as it was because of people who couldn’t get work.

Around 1994—coinciding with the spotted owl controversy and the Northwest Forest Plan—labor force participation began to drop. The 2001 recession hit the Oregon economy hardest about a year-and-a-half after the recession elsewhere in the U.S. In some sense, the state never truly recovered from that recession. Oregon’s labor force participation dropped sharply and ended up lower than labor force participation in the U.S. as a whole.

The most recent information from the Bureau of Labor Statistics shows that labor force participation in Oregon is now 2 percentage points lower than the U.S. average. If the state’s rate was the same as the U.S. average, Oregon would have 61,500 more people in the labor force—that’s more than the entire population of the City of Springfield.

Oregon’s declining labor force is working its way into declining incomes.

graph2

The figure above shows personal income per person in Oregon compared with the U.S. as a whole. Manufacturing activity associated with World War II boosted Oregon incomes. Just after the war, the average Oregonian was 10 percent better off than the average American. Incomes stabilized in the 1960s and 1970s, when Oregon was only slightly better off than elsewhere in the U.S.

The 1980-81 recession hit Oregon incomes especially hard, while the tech boom of the 1990s helped turn back some of the losses of the 1980s.

Oregon incomes burst with the dot-com bubble, and never recovered. The most recent information from the Census Bureau shows that personal income in Oregon is now 10 percent lower than the U.S. average. That’s about $360 a month.

While it’s tough to tell from eyeballing the graphs, and without saying anything about causation, there is a clear relationship between labor force participation and personal income. Improvements in labor force participation are associated with improvements in personal income and vice-versa. In this column, we have remarked on the relationship between income inequality and employment in which states with weak employment growth saw the steepest increases in income inequality.

Something has happened to Oregon over the past decade to cause steep declines in incomes and willingness to work. Part of it is surely due to the state’s high personal income tax rate that diminishes incentives to work. Another part of it is likely due to the state’s challenging business climate that diminishes incentives to hire employees. And yet another part may be due to state and local governments’ fixation on catering to the “creative class” at the expense of bread-and-butter workers and the firms that hire them.


Eric Fruits, Ph.D. is president and chief economist at Economics International Corp., a Portland-based consulting firm. He is an adjunct professor at Portland State University where he has taught classes in economics, finance, and state and local public finance. Any opinions are the author’s alone and do not reflect the opinions of any other person or organization.