New Englanders are more apt to work than their counterparts nationwide. Why?
A study conducted at the Federal Reserve Bank in Boston indicates that the reason has to do with innate characteristics of the population and not the regional economy.
Between 1974 and 1988, the labor force participation rate in New England was consistently above the national average and among the highest in the country. The participation rate is the percentage of the population 16 years of age and over that is in the labor force. The labor force consists of all people who are employed and those who are unemployed but looking for work.
In 1988, New England’s participation rate was 68.8 percent, compared with a national figure of 65.9 percent. The New England rate for males was 78.3 percent, about 2 percentage points above the nationwide figure of 76.2 percent. And for females, the New England rate of 60.2 percent was almost 4 percentage points above the national rate of 56.6 percent.
Only in the West North Central part of the country, as defined by the U.S. Census Bureau, were the participation rates higher than in New England. The West North Central states are Iowa, Kansas, Minnesota, Missouri, North Dakota, South Dakota and Nebraska.
Lynn E. Browne, vice president and deputy director of research for regional affairs at the Boston bank, conducted a study to determine reasons for the consistently higher participation rates in New England. Her findings were reported in the most recent edition of “New England Economic Review.”
Browne used regression analysis to determine the reasons for changes in participation rates. Higher wage rates result in higher rates of participation for males. In other words, when work is rewarded with more money, more men decide to become workers. But for females, higher wages didn’t result in greater participation.
Male rates, on the other hand, didn’t respond to inflationary fears. Females, however, were found to have higher rates of participation during periods of inflation. Women apparently are more apt to work as a family’s hedge against inflation.
When unemployment rates are high, the participation rate falls, Browne found. This is because people become discouraged and stop looking for work.
In families with children, male participation rates were higher and female rates were lower.
And not surprisingly, participation rates were affected by the age distribution of the population. In areas with larger percentages of working-age adults, or adults younger than normal retirement ages, the participation rates were higher.
But despite all these influences on participation rates, Browne found that none of them could explain the higher rates in New England.
For example, Browne wrote that participation rates in New England would be 2 or 4 percentage points higher than South Atlantic states given the same rates of unemployment, age structure of the population, and price and employment trends.
“Much of the variation in participation rates from one region to another seems to reflect immutable regional characteristics rather than economic variables that may change over time,” Browne wrote. “Because of the importance of these persistent regional characteristics, variations in participation rates are remarkably durable.” Browne was referring to the fact that New England’s participation rates have remained relatively high throughout periods of change in the regional economy.
Browne’s analysis also has implications for the economy of the 1990s, when a labor shortage is seen as a likely result of a relative decline in the number of working-age people. When labor is scarce, unemployment is low and wages increase.
The Federal Reserve study indicated that both of these factors could lead to increased labor force participation.
“If labor force participation increases in response to higher wages and rising employment opportunities, labor shortages are less likely,” Browne wrote. “Increased labor demand would, in effect, generate its own supply.”
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