This past spring, Indiana saw unemployment rise dramatically following the implementation of sweeping lockdowns needed to slow the spread of COVID-19. This pause in economic activity drove the state’s unemployment to a whopping 17.5% in April 2020—a rate greater than any experienced in the last 40 years.
As economic activity resumed throughout the summer, Indiana’s unemployment rate fell to 6.2% by September. While this is twice as high the pre-pandemic unemployment rate, it is nonetheless a sign of progress.
More concerning than the unemployment rate, however, is the participation rate. Often overlooked by the headlines, the participation rate measures the share of people in the labor market, meaning they are either employed or actively seeking employment.
If one wants to truly assess the health of the labor market, the participation rate needs to be weighed alongside the unemployment rate. This is because the unemployment rate does not take into account people who have exited the labor market. In other words, if someone who is unemployed gives up looking for a job, this person no longer enters the unemployment equation.
Like many other states, Indiana has seen a general decline in its participation rate, falling from a peak at just over 71% in 1995 to around 63% according to the most recent data. Indiana’s declining participation rate follows that of the nation and can be explained by many factors, though scholars have varying takes on the most concerning causes and potential interventions.
The participation rate is all the more relevant now as many people, particularly women, are leaving the labor market as result of disruptions caused by the coronavirus. Indeed, declining labor market participation is believed to be contributing to declining unemployment rates, making the labor market appear healthier than it really is.
Past economic disruptions, like the Great Recession, have coincided with longer-term drags on labor market participation. If the current pandemic-driven disruption does the same, it could inhibit economic growth in the years ahead.
Forthcoming research from both the Brookings Institution and the American Enterprise Institute conducted as part of the Indiana GPS Project explore additional challenges to Indiana’s future economic growth. These include issues related to worker skills, job quality, and demographics that could further weaken labor market participation.
Stay tuned to the Indiana GPS Project for this new research and recommendations from leading scholars on how Indiana’s economy can be strengthened in the years ahead.
