Although the economy continues to move in the right direction,it is at a snail's pace. Private sector hiring remains weak, and,as a result, any reasonable job market recovery is not expecteduntil the middle of 2011.

Because the workers' compensation industry's underwritingperformance is directly linked to the labor market recovery, theNational Councilon Compensation Insurance, Inc., (NCCI) recently released astudy, “Gaugingthe Economy,” that examines the current state of the economyand its implications for workers' compensation insurance.

Joblessness

Manufacturing and contracting account for roughly 20 percent ofworkers' compensation payroll but contribute about 40 percent toworkers' compensation premiums across all NCCI's states.

Two of the hardest hit sectors of the economy during therecession were construction and manufacturing. From its peak inAugust 2006, construction employment is down by more than 2 millionworkers — a decline of over 27 percent in employment in thatsector. At its peak, more than 7.7 million workers were employed inthe construction sector. According to the Moody's Economy.com latest forecast, constructionemployment may see some gains in the coming years as the economyrecovers slowly, but it may take another 20 years beforeconstruction employment reaches the pre-recession peak.

Since July 2000, the manufacturing sector has lost more than 5.6million jobs — a decline of about 33 percent. However, unlikeconstruction, manufacturing's share of employment has declinedsteadily over the past 50 years. The onslaught of the recessionexacerbated the employment situation in manufacturing. Althoughmanufacturing employment is expected to recover somewhat in thenext few years, its long-term trend is one of decliningtrajectory.

Employment Growth Across Industries

Most sectors of the economy have started to show improvementcompared to their levels a year ago. Based on the latest monthlydata from the U.S. Department of Labor, early in 2010 all but oneof the major sectors of the economy (Education and Health Services)were still declining from their levels a year ago. The picture ismarkedly different 11 months later when only four of the majorsectors are still posting declines on a year-over-year basis.Except for the government sector, the declines in other sectors ofthe economy continue to decelerate at a decent pace — lifting hopesthat labor market turnaround has started to gain somemomentum.

The employment picture in the government sector (especially atthe state and local levels) is not expected to improve over thenext couple of years. Most local governments and state budgets arestill suffering because their major source of tax revenue isproperty taxes, which are still declining due to the one- totwo-year lag between current market values and values used by taxcollectors. This headwind of strained budgets for most localgovernments generally receives limited attention, but it is one ofthe key factors that is limiting the speed of recovery.

By most accounts, the outlook for government workers remainsmurky because the federal government is looking to cut spending andreduce the deficit over the next severalyears.

What Occupations Will Be Growing theFastest?

According to the latest biannual employment projections from theLabor Department, the fastest growing occupations over the nextdecade (2008–2018) will be in the health sciences and technologyfields. Each of the 30 fastest growing occupations is projected togrow by more than 29 percent from 2008 to 2018. Biomedicalengineering is projected to be the fastest growing occupation withan impressive 72 percent growth rate. The importance of the healthsciences field is likely to grow over time as the aging populationis expected to consume more health care services.

The 32 percent projected growth in jobs over the 2008–2018decade for computer software engineers is much greater than theprojected average for all occupations (10 percent). The demand forcomputer networking is the primary driver behind the growthprojections for computer software engineers. Paradoxically, thejobs of computer programmers are expected to shrink slowly,decreasing by 3 percent from 2008 to 2018. This decline is a resultof several factors, such as advances in programming tools andlanguages, increasing ability of people to write their ownprograms, and most importantly, the growing trend toward offshoreoutsourcing across the world.

What Occupations Will Add theMost Jobs?

The 30 occupations with the projected largest numeric increaseare dominated by service occupations, such as health care support,personal care, and office and administrative support. Each of the30 occupations with the greatest absolute job growth is projectedto add at least 134,900 new jobs over the 2008–2018 decade. Thelargest numerical growth is projected for registered nursing, whichis expected to add about 582,000 new jobs (a 22 percent growthrate). The second highest addition of jobs is projected for homehealth aides, with 460,900 new jobs (50 percent growth) over theprojection horizon.

Many of the occupations that are projected to add the most newjobs are also considered high-paying professions. Out of top 30occupations adding the most jobs, about 50 percent are consideredhigh-wage occupations.

What Industries Are Expected to Grow theFastest?

Looking at the projections by industry reveals that in terms ofaverage annualized growth between 2008 and 2018, management,scientific, and technical consulting services will be the fastestgrowing industry with 6.2 percent growth rate, followed by othereducational services (4.5 percent) and individual and familyservices (4 percent). Individual and family services is composed ofservices for the elderly and disabled, which is expected to growfrom about 585,000 jobs in 2008 to over 1 million by 2018, anincrease of 74 percent (or 5.7percent per year). The demand for theindustry is expected to rise due to several factors, such as agingof the population and the growing awareness of mental anddisability issues. As health insurance providers are expected tocover more mental and behavioral health treatment options and agrowing number of elderly individuals seek social services, demandfor workers in these industries is projected to increase.

The industry and occupational analysis shows that the healthsciences and education sectors will remain important sources ofworkers' compensation exposure and premium growth over the comingdecade.

Conclusion

Recovery in the workers' compensation market is directly tied tothe recovery in the labor market. If the problems of long-termunemployment, underemployment, and people dropping out of the laborforce are not addressed in a meaningful way soon, then what appearsto be a demand-side issue may become a supply-side structuralissue. Such a scenario bodes ill for the national economy and needsa carefully crafted response by policymakers.

About NCCI: National Councilon Compensation Insurance, Inc., based in Boca Raton, Fla.,manages the nation's largest database of workers' compensationinsurance information. NCCI analyzes industry trends, preparesworkers compensation insurance rate recommendations, determines thecost of proposed legislation, and provides a variety of servicesand tools to maintain a healthy workers' compensation system.