“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: California’s economic recovery hasn’t created enough quality job opportunities, leaving the labor participation rate below historical norms.

Source: Bureau of Labor Statistics

Trend: My trusty spreadsheet — filled with some labor data from “Fred,” the Federal Reserve Bank of St. Louis’ database — tells me that in the first quarter, 62.8% of California’s working-age population was either employed or officially seeking work. That’s up from 62.6% at the end of 2018. It’s the fifth-consecutive quarterly gain in the state’s labor participation rate and the highest reading since 2013’s second quarter.

But … and it’s a big “but” … California’s participation rate between 1976 and 2010 averaged 66%, last peaking at that level in 2008’s second quarter — just before the Great Recession hit.

Dissection

This job-market statistic has been much debated during this economic expansion, both locally and nationally.

Some analysts suggest this benchmark’s inability to regain old peaks — today’s levels are equal to readings in the late-1970s — raises questions about the quality of new jobs and the skills mismatch between employer needs and worker capabilities.

Remember, California’s jobless rate averaged 4.2% in the first quarter, roughly one-third of the post-recession peak of 12.3% at 2010’s end. This low unemployment has forced bosses to more aggressively seek workers, notably raising pay.

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And this push is getting some people to re-enter the job market. But in the last 10 years, since the recession’s end, surveys of California employers shows an addition of 2.7 million jobs. Then look at the statewide workforce, tallied from a household poll. The number of people defined as employed or actively seeking a job grew by only 1.3 million.

The falling labor participation rate explains much of the gap. The 2019 labor participation level — 3 percentage points below historical norm — equals roughly 1 million workers no longer “participating” in a state with 31 million of “working age.”

The state’s participation challenges have been mimicked nationally. The U.S. rate averaged 63.1% in the first quarter, also the highest since 2013’s second quarter. But like California, that’s off historical trends: in 1976-2010, the national participation rate averaged 65.5%.

PS: The recent lower participation readings are certainly not all about economics and hiring patterns — demographics are in play, too. An aging population — statewide and nationally — is trimming potential members of the workforce as the number of retirees grows.

How bubbly?

On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … NO BUBBLE!

Hoping for a return to the “good ol’ days” isn’t a concern that will sink an economy. In fact, this labor participation shortfall could have a silver lining for employers as a possible untapped supply of available workers.