Iowa economists: Workforce participation rate still low as U.S. adds 850,000 jobs

By: - July 2, 2021 5:21 pm

Economists Bill Boal and Peter Orazem spoke on Iowa’s post-pandemic economy in a July 2 episode of Iowa Press. (Screenshot from Iowa Press)

The U.S. economy added 850,000 jobs in June, the Department of Labor announced Friday, representing a more significant growth than many economists had anticipated. But two Iowa economists noted that the workforce participation rate nationally and in the state had stalled.

Drake University Economics Professor Bill Boal on Friday pointed toward the national unemployment rate (5.9%) and workforce participation rate the number of people who are employed or actively seeking work, currently 61.6%. Both were relatively unchanged in the June report.

“It seems there are still lots of people sitting on the sides not looking for work,” Boal said.

Boal and Iowa State University economist Peter Orazem appeared Friday on “Iowa Press” on Iowa PBS.

Neither Boal nor Orazem could say exactly why Americans might not be re-entering the workforce. The Bureau of Labor Statistics reported that 6.4 million Americans would like to be employed but are currently not seeking a job. That’s 1.4 million more people than before the pandemic.

“What is different is they are not actively searching for jobs, but when they start searching, they are able to find them very quickly,” Orazem said.

In Iowa, 66.4% of Iowans were employed or seeking a job in May 2021, the most recent month of state-level data. In February 2020, 69.7% of Iowans were participating in the workforce.

“It has been striking, even more striking than the national numbers. It has been a big increase and it hasn’t really changed,” Boal said. “There are still a lot of people out of the labor force who were in the labor force a year ago.”

Unemployment benefits question still lingers

Boal and Orazem could not say yet if Gov. Kim Reynolds’ decision to withdraw Iowa from the additional $300 a week unemployment benefit affected the employment rate. They said the real test would be later this month, when state-specific numbers come out. 

But Orazem said the surge in employment growth nationally could correspond with Republican states withdrawing from the program.

“One assumes that that would increase incentives to take jobs,” Orazem said. “It is consistent with a sudden surge in employment growth nationally, but we don’t know where that growth is geographically yet.”

State surplus is ‘heartening,’ Boal says

Despite the hardships of the pandemic, the state budget maintained a hearty surplus. Iowa released a report Thursday that found the state’s tax revenue had grown by 18.6% in fiscal year 2021, which ended June 30. That’s an additional $1.4 billion dollars of taxes collected compared to the previous fiscal year.

The state was projected to end the fiscal year with about a half a billion dollars in surplus. The Gazette reported that this figure may increase significantly, due to the higher tax collection.

“It’s surprising actually that state and local governments, throughout the pandemic, their revenues have held up pretty well, more than I would have expected,” Boal said.

Reynolds signed a major tax cut law in June and promised more cuts on the way. Orazem said if Republicans get rid of the income tax completely, it could require raising the sales tax “substantially” in return. But an increased sales tax would be preferable to higher property taxes, he said. 

As the state phases out the property tax backfill, Orazem said local governments could get stuck between two bad options: keeping property taxes capped where they are, resulting in less money for some services, or raising property taxes.

“If you compare Iowa to its neighbors, it is our property tax rates that are the most destructive in terms of say looking at which side of a border new firms enter,” Orazem said.

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Katie Akin
Katie Akin

Katie Akin is a former Iowa Capital Dispatch reporter. Katie began her career as an intern at PolitiFact, debunking viral fake news and fact-checking state and national politicians. She moved to Iowa in 2019 for a politics internship at the Des Moines Register, where she assisted with Iowa Caucus coverage, multimedia projects and the Register’s Iowa Poll. She became the Register’s retail reporter in early 2020, chronicling the impact of the COVID-19 pandemic on Central Iowa’s restaurants and retailers.