Unemployment Has Doubled: Ratio Increases by State; Results Surprisingly Consistent

by: Rortybomb

Ryan Avent, reporting live from the AEA meeting, mentions a panel where Robert Shimer gives an excellent overview of the labor market (my bold):

Rob Shimer, who’s well known for his work on labour markets, offered additional thoughts on the employment situation, beginning by laying out a few key labour market facts. Take any given group within the labour force, and the crisis has essentially generated a doubling of the unemployment rate. Turnover among the unemployed has also been quite low since the initial decline. It hasn’t been a slump in which many different groups rotate through joblessness; instead a lump of labour fell into unemployment and has struggled to return to the work force.

That’s a great way to phrase it. Charlie Eisenhood has looked at this with breakdowns of age and education here and there’s been roughly a doubling in each case. And it isn’t just unemployment. Arjun Jayadev and I looked at this with underemployment, or people working involuntary part-time jobs, and we saw that it doubled in every occupation and in every career. To me this is strong evidence that our current employment problems are primarily cyclical and demand focused.

This plays out at the state level. Greg Mankiw quotes Raghu Rajan citing the work of Erik Hurst saying that

structural unemployment may account for up to three percentage points of total unemployment. In other words, were it not for construction, the US unemployment rate would be 6.5% – a far healthier situation than today.

I very much doubt that, and the video linked to by Rajan doesn’t mention 6.5%, and I don’t see a working paper anywhere that quantifies that. The video focuses on the state of Nevada, which has the highest unemployment in the country. It wouldn’t surprise me that the state of Nevada is in particularly bad shape given that it also gets a large share of its trade through tourism, an industry that suffers in a recession, alongside a large housing bubble. (We’ll try and get into the specific points he brings up in another post.)

But let’s just say that Nevada is uniquely messed up. What about all the other states? Again, following the Shimer rule above, they’ve basically all doubled their unemployment rates (click to enlarge):


That’s the ratio of state U3 unemployment rates, taking the 11/2010 rate and dividing it by the 11/2007 rate. (It’s consistent with other dates.) The average is 1.93, and the median is 1.87. So roughly a doubling. So to me Nevada having a higher unemployment isn’t nearly as interesting as why Nebraska has a 4.6% unemployment rate when it used to have a 3% unemployment rate – a 50% increase. Why has North Carolina’s unemployment rate doubled from 4.8% to 9.7%?

Yes Nevada is an important story, but it’s clearly an outlier in what is a national trend. They didn’t all have housing bubbles.