Falling Unemployment: Are workers getting jobs or getting discouraged?

The national unemployment rate rose for the second consecutive month in May, edging up to 9.1 percent. Fortunately for Oklahoma, the unemployment rate is moving in the opposite direction, dropping for a fifth consecutive month in April to 5.6 percent, giving us the 6^th lowest unemployment rate in the nation.  While this is good news for the state, inconsistent job growth locally and nationally suggest that the road to labor market recovery will continue to be rocky.  While any encouraging news is worth celebrating, we need to look beyond this standard indicator to better gauge the overall health of Oklahoma’s labor market.

The unemployment rate as calculated by the Bureau of Labor Statistics (BLS) is an imperfect measure of unemployment, especially in the aftermath of a protracted economic downturn.  The widely reported unemployment rate only counts people who “made specific efforts to find employment” in the last month.  If you are unemployed but don’t meet that criteria, you are not considered part of the labor force.  This method discounts unemployed Oklahomans who had no specific leads on a job, didn’t make any effort to find a job, or have given up looking for work indefinitely.  The BLS describes the distinction this way:

Persons who are neither employed nor unemployed are not in the labor force. This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work.

This post considers two alternative statistical measures of state unemployment:

• The employment to population ratio, a comprehensive figure that better captures all of the state’s unemployed, including discouraged and unsuccessful job seekers.
• The duration of unemployment, a particularly helpful statistic to consider as the economy recovers from one of the worst recessions in American history.

These indicators reveal that long-term joblessness is a persistent problem in Oklahoma, even as the state’s unemployment rate falls.

The employment to population ratio (EPOP) measures the proportion of the working-age population that is employed.  While a decline in the unemployment rate may be attributable to people dropping out of the labor force, rather than finding jobs, a decline in this indicator over time means a shrinking working population.  This graph compares the employment to population ratio in Oklahoma to the national ratio over a thirty-year period:

The percent of the state’s population that is employed has lagged behind the national ratio consistently since the mid 1980s.  Oklahoma’s employment to population ratio has dropped every year since the recession, hitting a thirty-year low of 58.2 percent in 2010; the national EPOP reached a 34-year low last month.

The duration of unemployment is another crucial indicator.  The longer a worker is jobless, the greater the likelihood that they will drop out of the labor force.  Long-term unemployment is so widespread and systemic that the BLS recently changed the way they collect data from the unemployed to more accurately reflect economic trends:

There was an unprecedented rise in the number of persons with very long durations of unemployment during the recent labor market downturn. Nearly 11 percent of unemployed persons had been looking for work for about 2 years or more in the fourth quarter of 2010.  Because of this increase, BLS and the Census Bureau updated the CPS instrument to accept reported unemployment durations of up to 5 years.

This trend represents a sobering challenge to the recovery of the job market because the rate at which the long-term unemployed find jobs compared to their newly jobless counterparts drops steadily from week to week.  In 2010, 89 percent of the nation’s unemployed who found a job had been out of work for less than a year.  In Oklahoma, the percentage of unemployed who were out of work for more than 15 weeks is an increasingly larger share of the state’s jobless population:

These auxiliary data reveal that it’s still too early to claim victory on the economic front.  With more and more media and political attention focusing on the debt ceiling and deficit reduction, red flags in the labor market are fading into the background.  Detailed monthly jobs reports issued by the Center for Economic Analysis (CEPR) document a litany of mounting statistical evidence on a painfully slow and slight economic recovery.  This is a critical time for state and national leaders and lawmakers to be developing new strategies for creating jobs and sparking economic growth.  A falling unemployment rate is welcome news, but we should keep a watchful eye on alternative indicators that alert us to underlying problems in the labor market that have the potential to weigh down the economy in the coming years.