The Strange Case of the Missing West Virginia Labor Force

The rate of labor force participation in West Virginia is far below all other states. This study finds that little of the participation rate gap can be attributed to traditional economic or institutional factors. For example, the high long-term unemployment rate in West Virginia accounts for less than 10 percent of the adult male participation gap. Most of the difference is associated with a large Appalachian population, and a high rate of federal disability benefits receipt. The latter, which we argue reflects tastes for nonmarket activities, also is a major factor in low participation rates of West Virginia adult females and teenagers. Unemployment does explain a significant portion of low participation rates for these groups. However, we estimate that a decline in the state's long-term unemployment rate to the nation's average would raise its aggregate participation rate by 3.9 percentage points, or just 28 percent of the total gap. It appears that nonparticipating West Virginians are not just “discouraged workers,” and that economic development policies should explore ways to increase aggregate labor supply, as well as labor demand.