EYE ON THE PIE: Unemployment rates highly variable

October 27, 2008

I apologize for filling a column with numbers. But there is no other way of depicting the unemployment situation in Indiana. As we have learned in the current financial crisis, lack of knowledge is the root of calamity.

In August, the latest date for which we have information, Indiana's unemployment rate was 6.4 percent, compared with 4.5 percent a year earlier. Nationally, the unemployment rate had gone from 4.7 percent in August 2007 to 6.1 percent this year.

This stronger movement in the unemployment rate for Indiana than in the country is typical at the start of a recession. We make the products that firms and people can stop buying when money gets tight: for example, parts for autos and appliances.

We went from having the 21st-highest unemployment rate a year ago to 15th place among the states in 2008. Our unemployment rate increase of 1.9 percent was among the top dozen changes. Arkansas, Kansas and Oklahoma were the only states to see their unemployment rates fall in that year's time.

The unemployment rate is obtained by taking the number of people unemployed and dividing it by the number of people in the labor force. (The labor force refers to the number of persons holding jobs, plus the number actively seeking employment.) If the percentage growth in the number employed does not equal the percentage increase in the labor force, the unemployment rate rises.

In Indiana this past year, the labor force grew by 39,000 (1.2 percent) while the number holding jobs declined by 25,000 (- 0.8 percent). When added together, the growth in the labor force and the decline in employed people equal a 64,000 growth in the number of unemployed people.

This does not mean every person entering the labor force became unemployed. Some found jobs, while others who had jobs lost them. For Indiana to have avoided an increase in its unemployment rate during the past year, it would have had to create 37,000 jobs, but instead it lost 25,000. That's a 64,000 increase in the number unemployed.

But the state data hide as much as they reveal. In August 2007, the highest unemployment rate (7.0 percent) in the state could be found in Fayette County; only 26 counties had unemployment rates above 5.0 percent. Fayette saw its unemployment rate rise to 11.2 percent in August 2008, while 80 counties now exceeded 5.0 percent.

Economists differ when the unemployment rate is too high. In the past, rates ranging from 3.0 percent to 7.5 percent have been suggested as the danger point. But it may be that rapid changes in unemployment rates are as serious as sustained high levels of unemployment. If that is the case, many Hoosier counties have been through a traumatic year.

During the past year, the number of people employed declined in each of Indiana's 92 counties. The greatest loss was 7,600 in Marion, the largest county. Next was Elkhart County, with a decline of 4,600, followed by Lake at 3,600.

But the 7,600 increase in the number of unemployed in Marion County had less effect on the unemployment rate than the 4,600 in Elkhart County. Marion County's unemployment rate went from 4.6 percent to 6.2 percent while Elkhart's more than doubled from 4.4 percent to 8.9 percent. Elkhart County's 4.5 percent rise in its unemployment rate was exceeded only by Adams County's 5.4 percent (from 4.0 percent to 9.4 percent).

The diversity of unemployment rates across the state is mirrored in the data for individual cities. For example, in Elkhart County, the city of Elkhart's unemployment rate went from 6.0 percent to 10.4 percent, and Goshen climbed from 4.4 percent to 8.8 percent. This means the balance of the county had unemployment rates of 3.8 percent in 2007 and 8.2 percent in 2008. These geographic differences may be helpful in forming policies for economic relief and, ultimately, economic development.

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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