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Friday’s state-level employment figures remind us that this economic recovery, like the recession that preceded it, is astonishingly uneven across America.
The unemployment rate remains more than 11 percent in Nevada and less than 4 percent in Nebraska. This heterogeneity poses great challenges to any nationwide stimulus policy, which will inevitably deliver its supposed medicine both to healthy Nebraska and ailing Nevada. Attempts to target aid to faltering states, or industries, slow the positive process of relocation across space and job. A far better path is to focus on helping poor people, not poor places, especially by improving education.
Two-and-a-half years ago, widespread travails made it easy to make the case for national economic interventions. In October 2009, there were only eight states with unemployment rates of less than 7 percent; collectively they made up 4.4 percent of the 50 states’ populations.
In April 2012, a total of 22 states had jobless rates of less than 7 percent. Our economic troubles are not over, but there are wide swaths of the country where joblessness is back to reasonable levels, which makes it harder to build the case for more nationwide action.
Education is a good predictor of which areas continue to have high unemployment rates. In April, the 25 states with the lowest share of high-school dropouts among adults older than 25 averaged a jobless rate of 6.3 percent. The 25 states with the highest shares of high-school dropouts averaged 8.2 percent unemployment.
This connection has been true throughout the recession. In October 2009, when the national jobless rate was at its peak, the rate averaged almost 8 percent in the 25 more-educated states and 9.8 percent in the less-educated ones.
The connection between education and unemployment is one reason for so much geographic similarity across economic declines. The slowdown during the early years of George W. Bush’s presidency was a much smaller event than the Great Recession, but the geographic pattern of unemployment was similar. The 15 states with the lowest rates in June 2003 are averaging 5.6 percent unemployment today, while the 15 states with the highest rates then are averaging 8.3 percent today.
Then and now, California, Michigan and North Carolina had high unemployment levels, while Maryland, Virginia and the Dakotas experienced far less joblessness.
The rates in April 2012 reflect variations in the extremity of the recessionary shock more than they reflect differences in the pace of recovery. The seasonally adjusted unemployment rate peaked in October 2009 at 10 percent, and we are now down to 8.1 percent. If patterns stayed constant, we should expect most states to have unemployment rates that equal about 0.81 times their rates in October 2009, and that’s pretty much true.
Thirty-nine states have unemployment rates that are within one percentage point of 0.81 times their unemployment rate in October 2009. Only three states have jobless rates that are more than 1.4 percentage points different from their predicted level. Michigan is the biggest positive surprise; its rate has fallen from 14 percent to 8.3 percent.
Rhode Island and Louisiana are doing worse than we would expect, given their October 2009 unemployment rates. Louisiana has relatively low unemployment, at 7.1 percent, but this is actually higher than the 6.9 percent rate it experienced in 2009. Unemployment in Rhode Island has come down slightly, but remains stubbornly high at slightly more than 11 percent.
Michigan’s Employment Grows
Changes in unemployment rates are not the same thing as economic resurgence. Michigan’s declining levels reflect some rising employment, but also a rapidly shrinking labor force. The Bureau of Labor Statistics establishment survey finds that Michigan’s employment has grown 4 percent since October 2009, adding about 157,000 jobs. The population survey finds that Michigan’s labor force has also shrunk by 147,000 people over the same period and is now 3 percent smaller than it was in October 2009. We don’t know yet if this drop indicates that people are moving to more robust economic environments or dropping out of the workforce altogether, but a rapidly shrinking labor pool is no sign of strength.
At the other end of the spectrum, some places with the most job growth have seen relatively modest changes in their unemployment. Texas, for example, has added 543,000 jobs since October 2009, an increase of 5.3 percent. But the Texas unemployment rate has fallen only 1.2 percentage points, distinctly below the national trend, from 8.1 percent to 6.9 percent. The rate has fallen by less in Texas precisely because that state’s labor force has increased by 518,000, more than 4 percent, since October 2009.
New York is a conundrum unto itself. The state’s unemployment level remained unchanged at 8.5 percent from March to April 2012, which is not much improved over its 8.8 percent rate in October 2009. The number of unemployed people in the state has fallen by only 40,000 since October 2009. Yet New York has also added more than 311,000 jobs since 2009, which is a reasonable growth rate of 3.6 percent. The combination of rising employment and stable unemployment rates would make sense if the labor force of New York state was growing, but it has also shrunk by more than 62,000 since October 2009.
One way to explain this puzzle is the mismatch between the establishment survey, which examines businesses and gives us jobs numbers, and the population survey, which counts individuals and gives us unemployment numbers. The establishment survey tells us that companies located in New York have added jobs, but the population report tells us that the employment of New York state residents has fallen. While pure measurement error is always a possibility, another explanation is that a lot of New York City companies have expanded by hiring people who live in New Jersey or Connecticut.
New Jersey’s Gloom
It’s hard to begrudge New Jersey the jobs, though, because it is one of the five states, along with North Carolina, California, Rhode Island and Nevada, where unemployment remains more than 9 percent. Of these five, both Nevada and North Carolina have recently experienced sharp declines in their unemployment rates -- 1.7 percentage points and 1.2 percentage points, respectively, over the past six months. That’s some good news.
There is less reason for optimism in the troubles of New Jersey and Rhode Island, which have certain similarities. Both states border much larger metropolitan areas and both did reasonably well in the boom years, when New York and Boston soared. But the recession has meant retrenchment and that appears to have hurt the metropolitan periphery more than the urban core, especially in those less-educated satellite cities, such as Newark, New Jersey, and Providence, Rhode Island. Manhattan has the mojo to compete globally, but it is harder for areas that don’t have such an agglomeration of talent.
The travails of California have been a running theme of this recession, but the Golden State really has two distinct regions. The well-educated coastal areas have come roaring back, as exemplified by Facebook Inc.’s initial public offering this month. The inland areas remain mired in a terrible recession. The most recent unemployment rate in Merced is more than 20 percent, and the rate in El Centro is 26 percent.
The regional disparities remind us of the remarkably different experience of Americans during and before the economic decline. The better-educated states and citizens have survived the Great Recession; less-educated areas and people continue to face challenges that are unlikely to disappear even if the economy rights itself.
These differences don’t require one-size-fits-all national policies. It would also be a mistake to channel aid to particular places, to try to stop the exodus of people moving to areas of opportunity. But we should do more to improve education throughout the country. The best path to prosperity is to attract and train smart people, and then get out of their way.