MARCUS: Hoosier employment deficit stands

Morton Marcus
February 12, 2011
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Morton Marcus

Last week’s column brought three spirits to my desk. First was the Spirit of Humanity, upset because I described the recession and recovery using numbers instead of people and concepts.

Next came the Spirit of Pertinence, indignant because my measure was compensation rather than jobs. Finally, the Spirit of Place fired a shot at my state-by-state analysis, which ignored the diversity among Indiana’s metropolitan areas.

To me, defective as I am, numbers offer specificity about people and concepts without the sentimentality of anecdote. To me, money is the issue. Few people labor for the glory of being employed; most people work for money. When they do not work, they have less to spend and less joy enters the homes of merchants. Thus, the first two spirits were told where they could go, and they left.

The third spirit hit its target, and this column is devoted to Indiana’s 16 metropolitan areas. I have no data, however, on compensation and will discuss instead the number of people employed.

Hoosiers with jobs at the end of 2010 totaled 260,000 fewer than four years earlier—the level necessary to regain the high ground we occupied before the recession. Those 260,000 equal an 8-percent work deficit. Bloomington’s metro area has a deficit of just 4 percent, while Elkhart struggles under a 23-percent deficit.

As the number of job-holders declined statewide, the number of people unemployed increased 136,000 (92-percent higher than at the end of 2006). In Evansville’s metro area, the number of unemployed grew a relatively modest 69 percent, compared with the 123-percent increase in Columbus.

How could 260,000 people lose employment and only 136,000 become unemployed? The answer: 124,000 Hoosiers left the labor force. Returning to pre-recession conditions demands not only reducing the number of unemployed, it means reattracting those who have moved on to other activities (retirement, living out-of state, returning to school or just sitting on the sidelines).

In Elkhart’s metro area, nearly three-quarters of those no longer employed left the labor force. In South Bend and Kokomo, the figure stands at 65 percent. Why are these numbers so high? It is not because of unemployment insurance. If you are not in the labor force, you cannot get unemployment compensation.

By contrast, in Lafayette and Indianapolis-Carmel, just a third of the job losers left the labor force, while in the Terre Haute and Jeffersonville-New Albany areas, the figure was 42 percent.

High rates of abandoning the labor force could be evidence of workers anticipating few job opportunities soon. Lower rates of labor-force departures (just 9 percent in Bloomington) may indicate more optimism about employment opportunities.

Leaving the labor force because of low expectations is called a discouraged-worker effect. It could be a knowledge effect, because the worker has rational expectations of the job market and knows when to sit out and wait. The U.S. Bureau of Labor Statistics counts people as discouraged if they are capable and willing to work, but have not looked for work during the last four weeks.

To see what this behavior means in terms of the unemployment rate, add the number of unemployed in 2010 to the labor force leavers (2006 to 2010) and divide by the 2006 labor force. Thus, we get a new Indiana unemployment rate of 12.6 percent, compared with the official 9.1 percent for December 2010. In the Elkhart metro area, this new unemployment rate skyrockets to 26.7 percent from 12.8 percent. Evansville climbs from a moderate 7.8 percent to 11.1 percent. Fort Wayne rises from 9.3 percent to 14.4 percent and the Gary area from 9.5 percent to 13.3 percent.

If numbers like these were being passed around, perhaps the unemployment situation would be taken more seriously by the business and community leaders who seem satisfied with our steady, but relaxed economic progress.•


Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.


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