Smaller Labor Force, Lower Level of Employment: Welcome to the New Normal

Sarasota, FL (WorkersCompensation.com) –The latest unemployment stats are the lowest since the pandemic began. The figures for December 2021 and January 2022 marked the first time since March 2020 that the jobless rate was at or near 4 percent, historically an indication of an economy in full employment.

“I think we are either in the new normal or pretty close to it,” said Len Herk, executive director and senior economist with NCCI. “It’s a change in perception, it’s not a change in reality. We are where we are. But the change in perception is that I don’t think it’s so much the narrative anymore about recovery from the COVID recession; when do we get back to where we were? I think we are there, but where we are is different than where we started.”

The focus of the Florida-based rate-making and research organization now is where things stand and what it means specifically for the workers’ compensation system. Two likely consequences are increased claims frequency and potentially higher severity.

Economic Realities

The employment picture is something of a conundrum. While the unemployment rate is relatively low, the national job total is more than 2 million below the comparable pre-pandemic level.

“Why is that happening?” Hert said, during a recent webinar. “That many people, 2.5 million, are not in the labor force … we have fewer people in the labor force; the number is very close to the number of fewer jobs.”

A combination of early retirements and people – especially women – leaving the workforce to care for children or others, has reduced the number of people who are either working or looking for work.

The employment recovery has consistently improved month over month, despite any expected disruptions due to COVID. It’s a theme Herk referred to as, delinking. The initial shock to the economy at the start of the pandemic was something of a ‘one and done,’ and subsequent fluctuations in infections, new variants and the like have not majorly impacted the economic recovery.

“Let me stress: Covid matters. The pandemic is continuing,” Herk said. “There are plenty of signs the pandemic will become endemic. That’s an important story, but it is not closely linked to what’s happening in the economy, certainly in the past year, even the past couple of years.”

Labor Force Changes

One factor that continues to be seen in the economy is what many have termed the ‘great resignation.’ The high vacancy rates along with higher wages in some sectors has prompted workers, especially those in low wage positions to leave their jobs. But the great resignation is only part of the picture.

“The great resignation is part of a larger phenomenon I’m calling the ‘great reshuffling,’ a lot of worker movements,” Herk said. “It’s a big story.”

Several phenomena are included in the reshuffling of workers, he said:

• Generational succession. Early retirements have resulted in younger people taking on jobs that had been held by those with more experience. Long-haul trucking, healthcare, and leisure and hospitality are especially affected.
• Other people dropping out of the labor force
• Worker migrations. That can mean employees moving to another job in the same industry, a difficult occupation in the same industry or an entirely different industry.

“These three factors, all are changing the labor market,” Herk said. “Are they going to permanently change it … we don’t know.” But the resulting changes have implications for the workers’ compensation system.

Implications for Workers’ Compensation

“Moving workers around changes the age profile and changes the experience profile,” Herk said. “There’s a lot of evidence that age and experience can have impacts on [claims] frequency and severity.”

Changes in the employment mix will affect industries and regions of the country differently,” Herk added.

“The great reshuffle is a big deal in general,” Herk said. “It’s specifically a big deal in workers’ compensation because it can potentially upset patterns that we have seen in the past.”

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