Economic Analysis Jan 2021 – Jun 2021

June 25, 2021

Labor Markets in the US and Wisconsin: Current State and Long-run Trends

I survey the current state of labor markets in the United States and the state of Wisconsin. In recent weeks the labor market has become a primary focus of economic and policy discussions, with job openings soaring to record levels while employment gains have slowed. Overall, the labor market in Wisconsin is currently tighter than nationwide, with the state having seen larger drop in unemployment and a larger increase in job openings in recent months. Moreover, the data suggests that labor supply issues have held back employment gains, whether from elevated unemployment insurance benefits, increased childcare duties with disrupted schooling, or continuing heath concerns.

While most of the factors causing the acute labor supply disruptions will lessen by the fall, long-term trends suggest reduced labor supply well into the future. All of these trends are stronger in Wisconsin than the nation overall. The state has seen a stagnant labor force for more than a decade. Labor force participation rates have been trending down for decades, driven largely by the aging of the population. Moreover births have fallen sharply in recent years and school enrollments have declined, suggesting smaller cohorts entering the labor market in years to come. While the “homegrown” labor force is set to shrink in coming years, migration is not likely to add many workers either. In recent years Wisconsin has seen small net domestic outflows to other states and small net positive total inflows due to international immigration. This suggests that, barring major changes in state or federal policy, drawing in new workers is unlikely to be a significant source of labor force growth for the state in the near future.

In sum, while there is much current discussion of a “labor shortage” due to acute short-term problems, in the long term the state is likely to face a declining labor force for years to come, which may have more dramatic implications.

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Media Coverage:
The Center Square

Feb 12, 2021

State and Local Government Revenue During the COVID-19 Pandemic

Abstract
While the early months of the COVID-19 pandemic put stress on the budgets of state and local governments around the country, their tax revenues have since rebounded. In addition, the federal government has already allocated substantial aid to these governments, which has more than offset the losses they have suffered. In particular, after nationwide state and local tax revenue fell by over 17% from the first to the second quarter of 2020, it bounced back strongly in the second half of the year and ended 2020 up 1.3% over 2019 – roughly constant in real terms. In addition, during 2020 the federal government sent $280 billion in transfers to these governments, and has already allocated an additional $120 billion in aid. These federal transfers led to growth of 8.9% in real revenue for state and local governments. In this brief, I document the recovery in state and local government total revenues and tax revenue, as well the distribution of revenue growth across states and discuss other sources of state fiscal support.

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Note: The material in this brief formed the basis for the City Journal article, “Their Cups Runneth Over”

https://crowe.wisc.edu/wp-content/uploads/sites/313/2021/02/state-rev-extended.pdf