- Associated Press - Saturday, January 9, 2021

CEDAR RAPIDS, Iowa (AP) - As state officials point toward Iowa’s decreasing unemployment rate as a “very good sign,” some economists are skeptical of the state’s economic progress since April.

Iowa’s unemployment rate has decreased for seven consecutive months after peaking at 11 percent.

“That is a great thing,” said Ryan West, deputy director of Iowa Workforce Development. “As we started to come out of those summer months, we’re starting to attract employees back to work.”

Some economists aren’t so quick to declare Iowa’s unemployment situation “great,” though.

“It’s going down for the wrong reason,” said Dave Swenson, an economics professor at Iowa State. “You’re losing a huge number of people from the numerator and denominator.”

The unemployment rate comes from the number of unemployment claims divided by the civilian labor force. The state’s labor force has shrunk to an historically low level.

The percentage of working-age Iowans - the state’s labor force participation rate - in the labor force is the lowest since 1977, according to data from the U.S. Bureau of Labor Statistics.

Between November 2019 and November 2020, one out of every 13 Iowa workers exited the labor force.

“Even though jobs were increasing in May, June and July, Iowa’s labor force was contracting,” Swenson told the Cedar Rapids Gazette. “We have had significant and maybe permanent exits from the labor force.”

But West pointed toward Iowa’s enviable position compared to other states in labor force participation rate as a reason for optimism.

Iowa had the highest labor force participation rate of any state in February.

By November, Iowa was tied for 12th with Connecticut, slipping behind most of its neighboring states.

Minnesota, Wisconsin, South Dakota and Nebraska had higher labor force participation rates than Iowa. Illinois and Missouri were below Iowa’s 65.3 percent mark.

“I think it’s still a great sign that we’re over 65 percent,” West said. “We’ll start to see that swing back up now.”

He’s confident that number will go up as vaccine distribution continues - with more restaurants seeing more customers, for example - and spring looms.

Herman Quirmbach, a retired ISU economics professor and Democratic state senator from Ames, compared Iowa’s relative strength nationally in its labor force participation rate to asking “which circle of hell do you prefer.”

“There are a lot of people having trouble paying rent, feeding the kids,” said Quirmbach, who has a doctorate in economics from Princeton University. “Christmas (wasn’t) as jolly as it would’ve been.”

As of November, Iowa had 1,561,600 people employed. That’s up from 1,506,500 in July, but before the pandemic it would’ve been the fewest employed Iowans since 2005.

“We have a lot of jobs to recover,” Swenson said.

Iowa has benefited, though, from being less tourist-dependent than other states, Swenson said. Iowa lost about 27,600 jobs in leisure and hospitality between November 2019 and November 2020.

“That’s where the bulk of the lost jobs are,” Swenson said. “Iowa is not a tourism state.”

At the same time, manufacturing lost about 4,200 jobs.

Even for those employed, these numbers have significant implications.

“If our labor market is constrained, then we can’t grow in terms of job growth, period,” Swenson said.

West specifically mentioned reduced burdens on taxes for unemployment insurance and the ease of finding new customers who can afford to spend more as concerns.

“When the economy is running great, everyone benefits from it,” West said.

Quirmbach also pointed to the state’s smaller tax base when fewer people are working.

“Fewer people having paychecks coming in means less withholding for income tax for the state,” Quirmbach explained.

“And less spending means less sales tax revenue for the state.”

There’s optimism about Iowa’s jobs market rebounding, though, once winter is over. Iowa Workforce Development typically sees the highest unemployment numbers in winter months because of seasonal layoffs in manufacturing, agriculture, construction and other industries.

West said federal stimulus also could make a difference.

Just as “people don’t leave the workforce on a whim,” Swenson said a “reasonably robust recovery” is necessary to bring people back into the workforce.

West noted there have been tens of thousands of job postings on the IowaWORKS website. He partially attributed the high number of postings to workers’ fear of coronavirus and lack of knowledge about career opportunities.

“Overall, there are lots of opportunities for employees who are out of work to get into a high-demand career path,” West said.

“I think John Smith in the eastern part of the state may not know what Julie is doing on the western side, and connecting those to see the opportunities is a big, big piece.”

West sees Iowa’s unemployment and labor force levels returning to pre-pandemic levels “real soon.”

“The (2008) recession was slow to come on and slow to wind down,” West said. With the COVID-19 pandemic, “we literally went to work on Friday and came in Monday with everything changed.”

That recovery, Swenson said, will vary between rural and urban areas, with cities of between 10,000 and 50,000 people particularly vulnerable.

“They seem to have the biggest declines and probably will have the slowest recovery,” Swenson said.

Quirmbach said the economic outlook depends on how many businesses permanently shutter versus temporarily lay off employees.

“You can’t call somebody back to a job that no longer exists,” Quirmbach said.

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