Diverging Fortunes: Labor Force Participation Trends in Large and Small Metro Areas
|Executive Summary
The U.S. labor force participation rate has been fairly steady the past few years despite the downward impulse from an aging workforce. Participation trends, however, have varied between different segments of the workforce. They have also varied by “place”. Labor force participation in the largest third of the nation’s metro areas (based on population size) has been climbing in recent years, while participation has continued to edge lower in mid-size and small metros. The divergent participation trends between large and small metros stem from both cyclical and structural factors, the latter of which will be hard to reverse by a strong economy alone. On the cyclical side, employment growth has been weaker in smaller metro areas, which has limited job opportunities for workers currently outside the labor force. However, the industry structure of smaller metros has contributed to the slower jobs recovery. Employment in smaller metros is skewed more toward the goods sector, while the nation has become an increasingly service-based economy and reliant on knowledge spillovers that are fostered in densely populated areas. At the same time, smaller metros tend to be older and less educated, two factors associated with lower participation.
For those discouraged over job opportunities in areas where employment growth has been weaker, moving is not the option it once was. Home prices in already expensive large metros have been rising faster than small areas in recent years. As a result, we wouldn’t be surprised to see the gap in labor force participation rates between large and smaller metro areas continue to widen. The divergent participation paths highlight the observation that the economic gains of the current expansion have not been spread evenly.
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