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Indiana's current recession may be less severe than 1982's

December 1, 2008

How much is too much? When do we start to worry? When can we relax and say, "Thank goodness, it's over."?

These are questions racing through our minds as we swim against the flood of economic news now testing our courage. Each day seems to bring new evidence of a serious downturn in the American and Hoosier economy. Stock prices are falling and unemployment is rising. Companies are closing and local governments are cutting services.

For tens of millions of Americans, these are new experiences. They do not remember the last great recession in 1982. Let's look at Indiana's unemployment experiences then and now:

The unemployment rate for Indiana in October 2008 was 6.0 percent. This means that, of the 3.2 million Hoosiers in the labor force, 3 million have jobs and 200,000 are looking for work. If people do not have jobs and are not looking for work, they are defined (by the federal government) as not unemployed; they're out of the labor force.

Is 6.0 percent unemployment an important level? The U.S. figure is 6.1 percent; we can rightfully claim that we are below the rate for the nation, but does that matter? In economics, there are no magic numbers. But, if we had 5-percent unemployment, there would be approximately 32,000 more Hoosiers at work.

These data have not benefited from seasonal adjustment to decrease the effect of normal variations over the course of the year. The seasonally adjusted unemployment rate in October for Indiana was 6.4 percent and 6.5 percent for the nation. Whichever set of data is used, the issues remain the same.

Yes, our unemployment rate is lower than those of our neighboring states. Is this supposed to indicate some inherent superiority on our part?

Relative to our neighbors, our position has deteriorated over the past year. In October 2007, Indiana's unemployment rate was 28th in the nation, at 4.1 percent, while Kentucky (the best of our neighbors) ranked 39th, at 4.8 percent. This year in October, Indiana ranked 32nd and Kentucky (still the best of our neighbors) ranked 36th. Our margin of "regional excellence" is shrinking.

But these are small differences of little significance compared to what we experienced in 1982. In November of that year, Indiana's unemployment rate was (a seasonally adjusted) 12.8 percent, and we had 334,000 people unemployed. This was part of a 26-months-long stretch from October 1981 to November 1983 where the unemployment rate in Indiana was 10 percent or worse. We had last seen 6 percent in June 1979 and would not be back down to that level until July 1987.

The drama of the current recession is difficult to compare to the 1982 collapse. Back then, the Indiana economy had seen double-digit unemployment rates for over a year. We have yet to see 7 percent.

In the past year, Indiana's labor force has grown by 39,700 persons (1.2%) compared with a decline of 24,000 (-0.9%) in 1982.

The number of persons employed dropped by 24,800 (-0.8%) this past year, while the loss was 84,300 (-3.6%) in 1982. Finally, the number of unemployed Hoosiers grew by 60,300 (23.2%) in 1982 while increasing by 64,600 (45.2%) in the past year.

Thus, although the number of unemployed Hoosiers has grown dramatically in the past year, we have not lost jobs as much as in 1982. With a growing labor market, it would seem this recession, thus far, is an economic shock that may be of shorter duration and severity than the 1982 decline.


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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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