Each state’s employment rate among prime-age adults was lower on average in the 12 months through June 2021 compared to the year before the COVID-19 recession. The pandemic left the job market in turmoil even as economic conditions began to improve. Employment rates fell in states reliant on the hard-hit leisure and hospitality sector, but declined less dramatically in several Great Plains states with more resilient economies.
On average, 76.1% of Americans aged 25 to 54 were employed in most states’ first full fiscal year since the novel coronavirus triggered a two-month recession in 2020 that resulted in business disruptions and historic job losses. The rate was down from 80% before the pandemic, meaning that for every 100 people of working age, around four fewer people were employed in fiscal 2021 compared to 2019. For state governments , a decline in employment among residents can translate into less tax revenue, and potentially additional demand for social services.
This key economic indicator, which, unlike the oft-cited unemployment rate, captures individuals who choose not to pursue employment as well as job seekers, reflected several pressures during the initial fiscal year of the recovery. . Companies have withheld their hires due to the unknown course of the pandemic, with millions of workers remaining on temporary layoff. At the same time, the rate at which Americans quit their jobs reached all-time highs in the spring of 2021. Others were reluctant to seek employment or return to work for reasons of health, child care, or employment. ‘other considerations related to the pandemic.
Some states have suffered much more economic turmoil than others. Nevada and Hawaii had the largest declines in prime-age employment rates (-10 and -6.9 percentage points, respectively) when averages over the 12-month recovery period ending in June are compared to 2019. Some of the hardest hit jobs were in leisure and hospitality. Casinos, hotels and other attractions have closed or limited their operations for months in Nevada. Air travel to Hawaii, dependent on tourism, almost completely ceased when the pandemic struck, and still had not fully recovered from September. The other states with the steepest rate cuts were largely concentrated on the east or west coasts.
The economies of a few Great Plains states have proven to be more resilient because they are generally less tied to industries devastated by the pandemic. In mid-2021, South Dakota saw the smallest decline of any state in its prime-age employment rate, a 0.9 percentage point reduction that was not considered as statistically significant or clearly below the pre-pandemic level. Unemployment in the state remained relatively low, and several industries, such as construction, recorded small employment gains.
The pandemic struck just as the national prime-age employment-to-population ratio finally surpassed its pre-Great Recession level in 2019, although rates in 24 states have yet to fully recover. Shortly after the onset of the pandemic, the share of people in their prime working years with a job fell to its lowest level in decades, according to seasonally adjusted monthly estimates from the U.S. Department of Labor. While the initial decline last spring was much more severe than states experienced even during the Great Recession, the prime-age employment rate has since recovered significantly. The estimated national monthly rate climbed to 78.3% in October, suggesting it had already rebounded by more than three-quarters from its low of 69.6% in April 2020 when the pandemic sparked business closures .
Employment ratios are influenced not only by job losses, but also by demographic and demographic changes. The ratio decreases when the number of workers aged 25 to 54 in a state declines faster or increases more slowly than the population of the same age group. Five states (Alaska, Idaho, Kansas, Nebraska and Montana) posted lower employment-to-population ratios, even though they managed to record small employment increases from 2019. This is because growth of their prime-age population outpaced employment gains among those in this age group.
Highlights of the state
A state-by-state comparison of the percentage point change in annual average employment-to-population ratios for those aged 25 to 54 between 2019, which was before the pandemic, and the 12-month recovery period ending in June 2021 shows:
- Prime-age employment rates fell across the country, but the change was statistically significant – or significantly lower than pre-pandemic levels – in 36 states.
- After Nevada and Hawaii, the largest reductions were recorded in Connecticut (-6.2 percentage points), New Jersey (-6 percentage points) and Maryland (-5.8 percentage points). This means that for every 100 people in that age group, about six fewer were employed in fiscal 2021 than before the pandemic. The changes were statistically significant.
- All but two of the 10 states that experienced the largest percentage point declines, Hawaii and Nevada, were on the east or west coasts.
- The states with the smallest declines were South Dakota (-0.9 percentage point) and Alaska, North Dakota and Montana (-1 percentage point each). The declines were not considered statistically significant, which means that the change could have been the result of sampling or other error.
- In FY2021, prime working-age adults were employed at the lowest rates in New Mexico (70.1%) and Nevada (71.2%), two states with major industries – energy, and leisure and hospitality, respectively – which have been hit by the pandemic. Mississippi (71.5%) and West Virginia (72%) posted similarly low rates, although they, along with New Mexico, are already among the lowest in the country as the pandemic. Adults of prime working age were employed at the highest rates in North Dakota (84.7%) and South Dakota (84.3%) during this period.
Workers suffered disparate impacts
Large disparities have emerged in how various segments of the workforce have weathered the economic downturn. Low-income workers, in particular, have struggled to regain a foothold in the economy as they were often employed in sectors most affected by the pandemic, such as restaurants and hotels. The same is true for young workers: the employment-to-population ratio of young people in their early twenties has declined more sharply than that of young people in the strength of the activity, compared to levels before the 2019 pandemic. Average prime-age employment rates were also still lower than pre-pandemic levels during the 12-month recovery period through mid-2021 for blacks (-5.5 points percentage) and Hispanic Americans (-5.2 percentage points) than whites of any ethnicity (- 3.4 percentage points.)
How employment affects government books
Economic conditions, including employment, are the main drivers of state finances. Changes in employment rates among adults in their early working years can affect both sides of a state’s fiscal ledger.
- Income: Paychecks help generate personal income taxes and fuel consumer spending, which in turn generates tax revenue on sales and business income.
- Expenses: Unemployed people often need more services such as Medicaid health care coverage and other safety net aids, which can increase state costs.
What is the employment-to-population ratio?
Although the unemployment figures receive considerable media attention, many economists also follow the employment-to-population ratio because it offers a broader view of labor market conditions. The unemployment rate, for example, excludes people who are not looking for work, but the employment rate captures this group in its measure of population.
Focusing on the 25-54 age group reduces the distortion in employment trends resulting from demographic effects such as the choices of older and younger workers regarding retirement or full-time education.
Another indicator of employment trends is the participation rate. While the employment-to-population ratio tracks the percentage of the population that is employed, the labor force participation rate measures the percentage that is working or actively seeking work.
A statistically significant decrease or increase indicates a higher level of confidence that there has been a real change in the employment rate. Changes that are not statistically significant offer less certainty and could be the result of variations in sampling or other methods used to produce employment estimates. Without additional tests for statistical significance, caution should be exercised when comparing changes in employment rates between states.
Download the data to see the trends for each state. Visit Pew Fiscal 50: State Trends and Analysis interactive resource to sort and analyze data for other indicators of the state’s fiscal health.