EDITORIAL: Does Delaware have a looming labor problem?

June 21, 2023 |By Jacob Owens

Delaware has seen a declining labor force participation rate for several years now as its older population has grown. | Photo by Shivendu Shukla on Unsplash The rollercoaster that is the United States economy has continued to subsequently defy and confirm fears in recent months. Jobs have continued to grow at

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[caption id="attachment_231839" align="aligncenter" width="1200"] Delaware labor force participation rate construction workers Unsplash

Delaware has seen a declining labor force participation rate for several years now as its older population has grown. | Photo by Shivendu Shukla on Unsplash[/caption] The rollercoaster that is the United States economy has continued to subsequently defy and confirm fears in recent months. Jobs have continued to grow at an unexpectedly steady pace while real estate transactions have slowed. Inflation has moderated, but core inflation that strips out food and energy prices remain stubbornly high. [caption id="attachment_222223" align="alignright" width="300"]

Jacob Owens
Editor
Delaware Business Times[/caption] On June 14, the Federal Reserve chose not to raise the nation’s benchmark interest rate for the first time in 10 meetings but warned that future raises were likely this year and that cuts weren’t in the cards for years ahead. About 59% of 42 economists surveyed by the National Association for Business Economics said they believe it’s likely that the United States will enter a recession in the next 12 months, according to the May NABE Outlook. That share of economists has stayed largely steady from the NABE’s February and December 2022 surveys, but also means that fears about a recession are lingering longer than anticipated. So, while concerns about a potential recession have calmed somewhat in 2023, they are not extinguished. One of the reasons for the up-and-down feelings about the future is the state of labor, where there are 4.7 million more job openings than workers available for them. And in Delaware there remains a bigger concern: our population is steadily outpacing our labor. Calculated via available data such as payroll and unemployment insurance claims but also through individual surveys, the labor force captures not only workers and those receiving unemployment benefits, but also those in search of work who aren’t receiving assistance. As workers stop seeking work, for a variety of reasons ranging from retirement to child care needs, they are no longer counted as being unemployed and therefore removed from the labor force. Labor is an interesting statistic to track because simple growth isn’t sufficient. For instance, Delaware’s 2022 year-end labor force of about 490,000 people represents the second highest on record, just behind 2021’s record high. But our labor force participation rate, or the ratio of resident workers to residents, is falling. In 2022, we broke the 60% threshold for the first time in at least 15 years, meaning we have less than six workers for every 10 residents. That’s not the case everywhere. As of March, more than half of states had a labor force participation rate higher than the national average of 62.6%, while Delaware had the 12th lowest rate at 59.8%. Of the 27 states that meet or exceeded the national average, however, only six states have rates higher than before the pandemic, meaning we’re all in a pinch. What concerns me more about Delaware is that while the pandemic has certainly worsened our labor-to-resident ratio, it was already in a decline beforehand. Starting in 1976, Delaware’s average labor force participation rate was higher than the national average – and significantly higher than the average from the late 1980s to the mid-1990s. That was likely thanks to the growth of credit banking via companies like MBNA as well as the exploding growth of the bellwether DuPont. In 2009, however, as both of those industries saw significant job losses, Delaware’s labor participation rate was surpassed by the national average for the first time in decades. That worsened through the Great Recession, but it improved along with the overall economy. Since 2018, however, our labor force participation rate has fallen from a high of 62.9%, primarily through a significant growth in new residents. In eight of the last 12 years, Delaware has seen its population of those over age 16 grow by at least 1%, and it has never registered a net loss. In the same period, the labor force has seen six years of sub-1% growth, including four with net losses. Just last year, Delaware saw an adult population growth of 1.7% but a labor force loss of 0.4%. In diving into the demographics of that loss, we see a trend that is playing out in communities across the First State. Between 2009 and 2022, the only age group to lose workers in Delaware was those between 45 and 54 years old. Meanwhile, the largest population group overall in the state are those over 65. That comes in no small part to the rising number of retirees in Delaware, taking advantage of a low tax climate, nearby beaches and the Interstate 95 corridor. Real estate has captured that trend, with more than 60 communities in Delaware now built or under construction for those 55 or older. But we’ve already begun to see the impact of that labor imbalance around the state. Wonder why your favorite restaurant can’t seat you at that clearly open table? Wonder why that big box retailer only ever has one checkout line open? Angry that you can’t seem to get a doctor’s appointment for a week? All these scenarios trace back to labor, as food service, retail and health care are three of the most impacted industries to date. We can’t grow new adults overnight, so Delaware needs to think about how it markets itself to out-of-state workers – a task as important as marketing to employers – and federal legislators need to tackle the immigration question that could more quickly rectify the growing issue. With such a small population, Delaware simply cannot sustain a labor force imbalance for long. That labor gap may turn out to be a generation-defining issue for the First State, and I hope leaders begin to think about how to address it.