NCCI Keeps Tabs on the Economy

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 expected until the middle of 2011.

Because the workers' compensation industry's underwriting performance is directly linked to the labor market recovery, the National Council on Compensation Insurance, Inc., (NCCI) recently released a study, “Gauging the Economy,” that examines the current state of the economy and its implications for workers' compensation insurance.

Joblessness 

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

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

Since July 2000, the manufacturing sector has lost more than 5.6 million jobs — a decline of about 33 percent. However, unlike construction, manufacturing's share of employment has declined steadily over the past 50 years. The onslaught of the recession exacerbated the employment situation in manufacturing. Although manufacturing employment is expected to recover somewhat in the next few years, its long-term trend is one of declining trajectory. 

Employment Growth Across Industries 

Most sectors of the economy have started to show improvement compared to their levels a year ago. Based on the latest monthly data from the U.S. Department of Labor, early in 2010 all but one of the major sectors of the economy (Education and Health Services) were still declining from their levels a year ago. The picture is markedly different 11 months later when only four of the major sectors are still posting declines on a year-over-year basis. Except for the government sector, the declines in other sectors of the economy continue to decelerate at a decent pace — lifting hopes that labor market turnaround has started to gain some momentum. 

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

By most accounts, the outlook for government workers remains murky because the federal government is looking to cut spending and reduce the deficit over the next several years. 

What Occupations Will Be Growing the Fastest? 

According to the latest biannual employment projections from the Labor Department, the fastest growing occupations over the next decade (2008–2018) will be in the health sciences and technology fields. Each of the 30 fastest growing occupations is projected to grow by more than 29 percent from 2008 to 2018. Biomedical engineering is projected to be the fastest growing occupation with an impressive 72 percent growth rate. The importance of the health sciences field is likely to grow over time as the aging population is expected to consume more health care services. 

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

 What Occupations Will Add the Most Jobs? 

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

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

What Industries Are Expected to Grow the Fastest? 

Looking at the projections by industry reveals that in terms of average annualized growth between 2008 and 2018, management, scientific, and technical consulting services will be the fastest growing industry with 6.2 percent growth rate, followed by other educational services (4.5 percent) and individual and family services (4 percent). Individual and family services is composed of services for the elderly and disabled, which is expected to grow from about 585,000 jobs in 2008 to over 1 million by 2018, an increase of 74 percent (or 5.7percent per year). The demand for the industry is expected to rise due to several factors, such as aging of the population and the growing awareness of mental and disability issues. As health insurance providers are expected to cover more mental and behavioral health treatment options and a growing number of elderly individuals seek social services, demand for workers in these industries is projected to increase. 

The industry and occupational analysis shows that the health sciences and education sectors will remain important sources of workers' compensation exposure and premium growth over the coming decade.  

Conclusion 

Recovery in the workers' compensation market is directly tied to the recovery in the labor market. If the problems of long-term unemployment, underemployment, and people dropping out of the labor force are not addressed in a meaningful way soon, then what appears to be a demand-side issue may become a supply-side structural issue. Such a scenario bodes ill for the national economy and needs a carefully crafted response by policy makers.  

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