An Alternative Measure of Idaho’s Labor Supply

In the nine years of growth following the recession of 2008-09, Idaho’s economy has created roughly 118,000 jobs. This amounts to a total growth of 17 percent over the low point of the recession, when Idaho’s total employment fell to 686,600 in March 2008. In comparison, total employment across the United States has grown by roughly 13 percent above its recession low point. Comparing growth rates – whether between states, regions or counties – only tells part of the story, however. Idaho’s job creation performance can be better evaluated in context of the state’s demographics.

The premise of this analysis is relatively straightforward. The notion of a healthy labor market – usually termed “full employment” – infers that jobs are abundant enough to employ everyone who wants to be employed. This implies job creation should be measured against the number of potential workers.

In Idaho, for example, the labor market did not recover its losses from the recession until January 2014; this was the point at which total employment re-attained its prerecession high point from 2007. Yet Idaho’s population did not stand still over those seven years. The state added roughly 136,000 residents in that time. Thus, simply recovering job losses does not provide a sufficient measure of the labor market’s performance. It is desirable that job creation should keep pace with the growth of the labor pool.

To evaluate Idaho’s job creation in context, it is necessary to build an estimate of the state’s potential labor pool. This differs from the labor force, which is a measure of the population working or looking for work and excludes people who are not looking for work. The measure needed for this analysis is broader, and is based on the state’s underlying demographic profile. This measure is called the expected labor pool in this analysis.

To estimate Idaho’s expected labor pool, one can use the state’s demographic profile in conjunction with labor force participation data from the U.S. Bureau of Labor Statistics (BLS). This data estimates the probability that a person will participate in the labor force – either by working or by seeking a job – based on gender and age. For example, the BLS estimates that 90.6 percent of males between 35 and 39 years old will participate in the labor force, compared with only 36.9 percent of males between 65 and 69 years old. This data is used, in conjunction with Idaho’s demographic profile, to calculate the state’s expected labor pool on an annualized basis.

The expected labor pool differs from the labor force primarily in its relative lack of responsiveness to economic conditions. When the economy suffers and jobs disappear, many people stop looking for work, causing them to drop out of the labor force, as the BLS formally measures it. Because the expected labor pool – the metric for this analysis – is based on the demographic data, it will grow as long as the underlying state population is growing. As a result, expected labor pool tends to be a more stable measurement of the state’s underlying potential labor supply.

Based on our estimate of the state’s potential labor pool, Idaho’s job creation has recovered most, but not all, of the ground lost in the recession. In late 2007, Idaho’s labor market was running at near maximum potential, and the gap between total employment and the potential labor pool was roughly 1 percent. This gap exploded in 2008 and 2009, as employment contracted. Even during the recession years, Idaho’s potential labor pool continued to grow as the state’s population expanded. By the end of 2017, however, job creation had recovered most of these losses, and the gap between employment and potential has shrunk to roughly 2 percent.

The potential labor pool differs sharply from formal labor force measures. The labor force is a measure of economic reality – the number of people working and looking for work. In contrast, potential labor pool represents economic potential by estimating the labor force that the population could be reasonably expected to support. Based on this analysis, Idaho’s labor market has performed admirably post-recession to close the potential gap. With a gap of only 2 percent between total employment and the expected labor pool, Idaho’s available labor market slack is in short supply, as the formal unemployment rate would suggest. This suggests that observers anticipating a substantial number of people to re-enter the labor force in response to Idaho’s low unemployment rate may want to temper their expectations.

Sam.Wolkenhauer@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 457-8789 ext. 4451

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