Labor Day Report: Economic Recovery Eludes Many Michigan Families

While Michigan’s unemployment numbers have returned to pre-recession levels, and jobs continue to be added, economic recovery is still extremely far-off for the 17% of Michigan individuals and 23.4% of Michigan children living in poverty.1

There are a number of factors that help explain why economic improvements have not reached all families in the state, including continuing high underemployment, the persistence of long-term unemployment and racial disparities in unemployment. Addressing long-term unemployment and supporting workers who are stuck in part-time or low-wage work remains crucial. Understanding and reducing racial disparities in unemployment is also key. State policymakers must adopt policies that will support families working toward economic security. These include reasonable unemployment insurance and a living wage, as well as investment in adult education and postsecondary training that connect workers to jobs that enable them to support their families.

Many Workers in Michigan Are Still Not Back to Work

Michigan’s unemployment rate dropped to 5.3% in July 2015, the lowest it’s been since 2001.2 While this is something to celebrate, it masks the fact that labor force participation is low and that many workers have simply stopped looking for work. The unemployment rate measures the percentage of the labor force that wants to work but is not working; it does not measure the percentage of the working-age population that is unemployed or has left the labor force entirely. It also says nothing about the loss of workers from the labor force over time. The good news about Michigan’s unemployment rate must be seen in light of a significantly shrinking labor force and an increasing share of the state’s working-age population that is no longer in the labor force.

In 2000, when Michigan’s economy was at its best in many decades, the unemployment rate was 3.6% and 69% of working-age adults in Michigan were working or actively looking for jobs. In 2009, when Michigan had its highest annual unemployment rate in recent years (13.7%), its labor force participation rate had fallen to 63%. Since then, despite the unemployment rate improving each year, the labor participation rate has fallen to less than 61% in Michigan. Michigan’s labor force participation rate was 60.5% in 2014 despite its lowest unemployment rate in many years, and was far below the Midwest labor force participation rate of 65% (Figure 1).3

In addition to the labor force participation rate being low, Michigan’s labor force itself is shrinking. Michigan’s workforce has lost many workers in the past 15 years. In 2000, there were 5.16 million workers in the labor force (this includes all adults currently employed and unemployed), but by 2014, Michigan’s labor force was comprised of slightly more than 4.75 million workers—a loss of more than 412,000 workers since 2000 (Figure 2).4

Workers leave the workforce for a variety of reasons: retirement, moving out of state (in some cases to look for or accept work), incarcera-tion, full-time parenting, attending school full-time and death. Using 2000 as a baseline, in 2011, the number of Michigan’s lost workers surpassed the number of currently unem-ployed workers. Although by 2014 the state regained some of its workforce, the number of lost workers continues to exceed the number of unemployed workers (Figure 3).

It is in this context of a shrinking labor force and a low labor force participation rate that we must view the decreasing unemployment rate. The state’s unemployment rate alone is not a sufficient measuring stick and Michigan certainly has a long way to go to recover from the past 12 years of a poor economy.

Underemployment and Long-Term Unemployment

While the number of jobs has increased and there are fewer unemployed workers, many of the jobs that were created in recent years have been low-wage, part-time jobs that do not bring families out of poverty. Currently, 25% of workers over 18 are in low-wage jobs and almost a third (32.4%) of working families in Michigan are low-income (below 200% of the federal poverty line).5

It should be no surprise, then, that despite the decreasing unemployment rate, Michigan poverty remained high in 2013 at 17% total and 23.4% for children. This is made clearer when taking into account marginally-attached and involuntary part-time workers.6 These workers are not counted in the unemployment rate, but are factored along with unemployed workers into Michigan’s underemployment rate of 13.9%, the fifth highest in the nation (Figure 4).7

Michigan’s long-term unemployment share (the percent of jobless workers who have been unemployed for more than half a year) was at 6.5% during Michigan’s economic boom in 2000, but was 34.8% in 2014.8 While this is an improvement from 49.8% at its height in 2010, the current rate remains a cause for concern. It is unclear whether the decline is due to a true reduction in long-term unemployment or to workers dropping out of the labor force entirely. With labor force participation dropping from 63% when the unemployment rate was at its peak to 60% in 2014, there is reason to believe that the effects of the Great Recession remain, and many workers have simply given up searching due to limited supply of stable, living-wage employment.

Racial Disparities in Unemployment and Wages

Unemployment in Michigan is generally higher and median wages lower for people of color. African-American and Hispanic workers in Michigan have much higher rates of unemployment than white workers. Although all three races of workers have benefited from reduced unemployment rates since 2010, in 2014 the unemployment rate for African-Americans was almost three times as high as the rate for whites, worse than in 2010 when the rate was just over two times as high. (Figure 5).

While wages have remained generally flat over several decades for workers at large, there is a wide gap between whites and African-Americans due to a significant decline in wages for African-Americans. Economists offer several explanations for this, mostly resting on the greater impact the recession had on African-American communities due to more limited assets compared to whites.9 Since 2010, while the median wage of white Michigan workers changed very little (-$.09), that of African-American workers declined by a significant amount (-$2.23).10 It is clear that African-Americans have not shared in Michigan’s economic recovery to the degree that whites have (Figure 6).

Policies to Help Families Recover

A number of decisions by policymakers over the last five years have made it harder for families to make ends meet and move out of poverty. The length of time needy families can receive cash assistance has been cut dramatically, an asset test for food assistance has limited those who have access to food, and a cut to the Michigan Earned Income Tax Credit has raised taxes on low-income working families. In light of persistent long-term unemployment and racial disparities in unemployment, policy changes are needed to help promote economic security.

Modernize Michigan’s Unemployment Insurance Program

Unemployment insurance is a safety net for workers who have become unemployed, but in Michigan, it is not as effective as it could be. Currently, many Michigan workers are ineligible to access unemployment insurance benefits, and except in situations of work-sharing, the benefits are not available to workers when an employer needs to reduce hours during low-profit periods. Modernizing the system to allow workers who through no fault of their own have their hours cut, allowing part-time workers to receive benefits, and restoring the 26-week maximum (from the current 20-week maximum) are ways to improve Michigan’s current system. Michigan can also make unemployment benefits available for workers who choose to leave work based on scheduling issues if the worker is unable to accept the position after an agreed-upon trial period. These steps will give unemployed and underemployed workers the support they need as they look for work.11,12

Adequately Fund Adult Education for Low-Skilled Workers

Adult education serves the segment of the population that does not have the basic skills necessary to gain secure, family-supporting employment, or to succeed in occupational training that leads to such employment. Yet year after year, state policymakers neglect to adequately fund this key workforce development program, making it less accessible for low-skilled workers who want to build their skills, become financially self-sufficient and contribute to Michigan’s economy. Better funding for adult education, along with expanding it into places such as community colleges and Head Start programs, will enable it to meet the demand more effectively.13

Restore Postsecondary Financial Aid Grants for Older Students

The decision to get trained in new skills is often made more than 10 years after graduation from high school. While state financial aid helps many students of traditional college age, there are no state financial aid programs to help students attend public community colleges or universities if they have been out of high school for more than 10 years. Two of the three existing state grant programs explicitly exclude such individuals from eligibility, and the third is available only to those attending private, not-for-profit institutions. In 2009, grants specifically for older students were cut from the state budget. The Michigan Legislature had an opportunity to restore these grants during the budget process in 2015, but declined to do so.

Raise the Minimum Wage

Due to the nature of the recent economic recovery and the reality of many newly created jobs being low wage and part time, maintaining the current four-step minimum wage increase as enacted by law is essential. Indexing the minimum wage each year thereafter based on either inflation or wage averages also has the potential to lift a significant number of families and children out of poverty. Ensuring that jobs pay a fair wage is an opportunity to provide workers with the financial support they need to succeed.

Endnotes

  1. Michigan League for Public Policy, Michigan Families Continue to Struggle Since Recession, December 2014.
  2. Bureau of Labor Statistics.
  3. Economic Policy Institute Analysis of Current Population Survey data.
  4. Bureau of Labor Statistics.
  5. Working Poor Families Project data generated by the Population Reference Bureau from the American Community Survey.
  6. Marginally-attached workers are individuals not in the labor force who want and are available for work and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey. (Discouraged workers and conditionally interested workers are a subset of the marginally attached.) Involuntary part-time workers are individuals who work fewer than 35 hours due to inability to find full-time work or seasonal declines in demand and who want and are available for full-time work.
  7. Economic Policy Institute, op.cit.
  8. Ibid.
  9. Pew Research Center, Wealth Inequality Has Widened along Racial, Ethnic Lines since End of Great Recession, December 2014.
  10. Economic Policy Institute, op.cit.
  11. Ben-Ishai, Liz, Rick McHugh and Claire McKenna, Out of Sync: How Unemployment Insurance Rules Fail Workers with Volatile Job Schedules, National Employment Law Project, August 4, 2015.
  12. Michigan League for Public Policy, Falling Short: Michigan’s Unemployment Insurance Compares Poorly with Other Midwestern States, November 2011.
  13. For more information, see Michigan League for Public Policy, Willing to Work and Ready to Learn: More Adult Education Would Strengthen Michigan’s Economy, March 2015.