Rural unemployment and participation in the labor force

By Kelly Asche, Research associate & Marnie Werner, VP Research

This week the Center is released a new report on the state of rural Minnesota’s workforce. In 2019, we assembled a four-part series on rural Minnesota’s worker shortage, it’s impact on economic growth in Greater Minnesota, and what rural communities are doing about the problem.

Now, almost a year into the global pandemic, we’re looking at the impact COVID-19 has had on our workforce, not from a health standpoint, but from a labor standpoint. What we found was interesting: Minnesota, especially rural Minnesota, is sitting in a unique position, one that’s probably unprecedented—we have a larger-than-normal pool of unemployed workers and an historically large pool of businesses looking for people. It’s a great opportunity for rural communities. There’s just one problem: most of the workers in need of jobs don’t have the skills needed for most of the jobs that are available. Read on.

High unemployment: It’s different this time.

The pandemic has created two kinds of unemployment in Greater Minnesota:

  • Those workers who were laid off from jobs at the businesses that had to close at various times during 2020.
  • Those workers who then decided not to go back to work or continue participating in the workforce at all due to the pandemic’s impact on their personal situation.

A quick glance at unemployment trends reveals the effect the pandemic has had on workforce so far. Figure 1 shows the significant spike in unemployment claims in April and a slow decrease since that period. The hardest hit regions have been the Central and Northeast regions of Minnesota, while southern Minnesota saw the smallest change in unemployment.

Figure 1: The number of weekly unemployment claims in 2020 as a percentage of total employment for the year 2019 shows a spike in the spring during the shutdown of non-essential businesses, then a slow descent over time with a smaller uptick in November. Data: MN Dept. of Employment and Economic Development, Unemployment Claims; Bureau of Labor Statistics, Occupational Employment Statistics


Starting in October, though, there has been a third type of unemployment that has less to do with the pandemic:

  • Layoffs and unemployment related to seasonal work.

There has been considerable discussion around the increasing unemployment since November and whether that had anything to do with the latest rounds of business restrictions put in place at that time, but it looks from the data like a large percentage of unemployment claims had to do with seasonal layoffs since they came from occupations that would typically experience higher unemployment claims during the winter months anyway.

Due to the seasonal nature of employment for many industries in rural areas, growth in unemployment claims after September is typical in Greater Minnesota. So, despite closures in the restaurant and entertainment sectors, by November unemployment rates in rural areas were not substantially different from what they were in 2019 (Figure 2). In fact, the largest difference in unemployment rates between 2019 and 2020 was in the Twin Cities seven-county metro, where by the end of November 2020 the unemployment rate was 1.3 percentage points higher than in November 2019.

Figure 2: Comparing the difference between unemployment rates for 2019 and 2020 shows how much higher rates were in early summer 2020 during the peak of the pandemic compared to the same months in 2019. Data: MN DEED, Local Area Unemployment Statistics


A worrying trend: Participation in the labor force

So, if we were to only look at the unemployment numbers, we would think that unemployment isn’t “as bad” in rural Minnesota, but the unemployment rate doesn’t take into account another important number: the number of people who have dropped out of the labor force altogether.

It’s important to remember that if someone is “on unemployment,” they may be without a job and collecting unemployment benefits, but they are still participating in the labor force. The labor force represents all the people either working or who want to work, which is usually defined by people “actively looking for a job.” A drop in the unemployment rate, then, could mean that those individuals found employment.

A drop in the unemployment rate, though, could also represent a group of people who dropped out of the labor force altogether. In other words, they have stopped looking for work.

When analyzing labor force trends, it’s important to take into consideration that it’s normal for the labor force participation rate to fluctuate throughout the year. Participation follows a fairly predictable cycle in most regions of the state: it grows through the first six months of the year, peaks in the summer when all industries are at full capacity, then drops off over the winter as some industries slow down.

By comparing the rise and fall of labor force participation throughout 2019 and 2020 (Figure 3), we can see that growth in labor force participation in 2020 was not only consistently below that of 2019, but it was also negative for most regions of the state throughout the year, which indicates a shrinking number of workers looking for work or in the case of 2020, even planning to go back to work in the near future. The most severe cases appear to be in Northeast Minnesota and the Twin Cities metro. Even in Southwest Minnesota, where the number of individuals participating in the labor force was higher in November 2020 than in January 2020, it was a significantly smaller change than in 2019, when the labor force was 3.0% bigger compared to January 2019.

Figure 3: Since the number of people participating in the labor force fluctuates throughout the year, it’s best to compare the fluctuation rather than the numbers. This chart shows that in 2020 the number of individuals participating in the labor force indexed to January 2020 is significantly lower across all of Minnesota compared to the index in 2019. Data: MN DEED, Local Area Unemployment Statistics


So this year we are seeing something different with unemployment. We’re seeing what we would normally see with a large number of layoffs—a large number of unemployment claims and a rising unemployment rate—but we’re also seeing a large number of individuals leaving the labor force altogether. And we can see from Figure 4 how a drop in the unemployment rate can mask the decline in labor force participation.

Figure 4: In the second half of 2020, unemployment claims declined along with people participating in the labor force, indicating that dropping unemployment rates are partially due to people dropping out of the labor force altogether.


Specialists with workforce development organizations and dislocated worker programs give multiple reasons for the growing number of individuals dropping out of the labor force, most of them created by the unique environment of the pandemic. Many workers on unemployment fear going back to jobs that put them in frequent contact with people, as in the case of restaurant serving staff, sales associates and other customer service-related occupations. Life turmoil created by the pandemic is also a factor: kids home from school, reduced childcare availability, and the elimination of other services that help people be productive at work have forced many people to choose to not work at all.

An interesting opportunity

This leaves workforce development organizations in an interesting position. For the first time in years there is a pool of potential workers to fill many of the job vacancies in rural Minnesota. But many of the workers who are currently unemployed don’t have the same skills needed for the currently available jobs. And as workers drop out of the labor force, they become harder to contact and attract back to these jobs.

Maybe once the pandemic is under control, schools and childcare have reopened completely and people feel safe going back to work, those people who dropped out of the labor force will come back in. But until then, the conversation around workforce development needs to be not only about unemployment, but also how to create environments where individuals feel safe enough to enter back into the labor force. And then, how do we invest in our workforce development organizations and programs to help them engage both businesses and individuals as we make this transition out of the pandemic and back to normal? Because once the pandemic is over, rural Minnesota will still have hundreds of well-paying skilled jobs that need workers.