Drawing sidelined Wisconsin workers back to the labor force

By IKE BRANNON and ANDREW HANSON | Sept. 6, 2018

In many respects, the current Wisconsin economy is almost miraculously good. The unemployment rate is below 3 percent, wages have begun rising even for lower-income workers and the historical out-migration of skilled college graduates to Chicago or points beyond has largely ceased.

However, some worry that this economic nirvana cannot continue much longer because the state appears to be running out of workers. Can Wisconsin maintain this growth and attract new businesses if the state is experiencing a bona fide labor shortage?

In a new report, titled “Wisconsin: A Blueprint for More Workers,” we found evidence that despite the challenge of finding qualified workers, the state still has some room to grow before the labor market seriously begins to constrain it.

For starters, the state's labor force participation rate of 68.9 percent is several points below where it was during the last two economic expansions. While several factors likely contribute to this – changing demographics and the opioid scourge among them – it does appear that there are still Wisconsin residents who might be enticed to rejoin the labor market if wages – and the availability of jobs – grow.

We suspect the fact that the labor market has aged over the past two decades has something to do with it; we also don't discount the impact of the opioid crisis. However, the labor force participation rate has recently ticked up, and we believe there is room for this trend to continue.

We also found evidence that the decades-long out-migration to Chicago and points beyond has receded. These days, more workers see opportunities in their home state and are sticking around to take advantage of them, giving us reason to believe that our pool of skilled labor can continue to expand.

While the state’s economy has steadily grown for almost a decade, not everyone has benefited from this expansion. A continued low unemployment rate incentivizes companies to find such workers, offer them a salary they can live with and provide them with adequate training.

Such investment is not just a good thing for these workers but for the entire state. Our analysis shows that increasing the state’s labor force participation rate by just 1 percentage point would increase gross state product by a whopping $667 annually per resident.

At the same time, policy-makers should consider ways to incentivize greater labor force participation, including enhancing the earned income tax credit, removing employment barriers to the formerly incarcerated, effectively addressing the opioid scourge and encouraging more of the disabled to join the workforce.

Avoiding policies that deter labor force participation, such as minimum wage increases, will also help. Wisconsin’s proximity to relatively high minimum-wage states probably benefits the Badger State economy, as some mobile employers seeking young or relatively untrained workers may choose Wisconsin over contiguous states.

There is also evidence that Minnesota’s recent minimum-wage increase is compelling its newly unemployed workers to seek work in Wisconsin’s border cities.

The challenges created by a white-hot economy and low unemployment rate are real, but there is clearly some slack in Wisconsin’s labor force participation rate. If employers and policy-makers find creative ways to pull these individuals off the sidelines, the benefits will accrue to all of us.

Ike Brannon is president of Capital Policy Analytics and a visiting fellow at the Badger Institute. Andrew Hanson is an associate professor of economics at Marquette University and a Badger Institute visiting fellow.