The March monthly jobs report released on Friday actually shares two striking similarities with Easter (hint: jellybeans are not one of them).
One similarity is that, in each case, our attention is often focused on the wrong things. The labor market headlines, as usual, are focused on job growth and the unemployment rate. Employers added just 126,000 jobs in March, which, together with a reduction of 69,000 in the job creation estimates for January and February, suggests that the pace of recovery is slower than previously thought. Nevertheless, with the unemployment rate steady at 5.5 percent — just fractions of a percentage point above its pre-recession norm — many policymakers and commentators remain convinced the economy is heating up.
Wrong. Instead, as I and others have argued, the unemployment rate, considered in isolation, gives us an incomplete and misleading impression of the labor market’s health because it counts only those people who are out of work and say they are actively searching for a job.
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What it leaves out are the millions of Americans who are categorized as “not in the labor force” — that is, unemployed, but report not looking for work. As it turns out, approximately 2 million of these so-called non-participants find jobs in a given month, or about the same number of new hires as there are among the officially unemployed, and a clear indication that the unemployment rate does not capture the full universe of labor market hardship.
In Easter terms, its equivalent to thinking today is all about a magical bunny delivering candy and pastel colored eggs to excited children, while leaving out the deeper, spiritual story of sacrifice and suffering, of faith and forgiveness, of redemption, renewal and rebirth.
It doesn’t have to be this way. There is another indicator, the employment-population (E-P) ratio, that provides a more complete picture of the labor market — and it’s right there in the jobs report, albeit below the fold. Instead of focusing on a subset of who isn’t working, the E-P ratio tells us who is: the share of the adult population that is employed. In other words, it adjusts the unemployment rate for labor force participation. If you want to calculate it, all you have to do is subtract the unemployment rate from 100 and multiply it by the participation rate (assuming all the indicators are measured in percents).
The corrective it offers is striking. For the past three months, the E-P ratio has been stubbornly stuck at 59.3 percent, not far removed from its post-recession trough of 58.2 percent and a far cry from the 63.0 percent it averaged in 2007. Part of the decline was expected to come with the retirement of the baby boom generation, but the weakness has been deeper than demographics alone can explain.
What’s more, among workers in the prime ages of 25 to 54, a group that isn’t affected by aging, the E-P ratio is just 77.2 percent—well off its 2007 average of 79.9 percent. If our yardstick for labor market health is the proportion of Americans who are working, we still have a way to go.
Which bring us to Easter parallel number two: Broad averages are not indicative of the overall distribution of experiences. While florists’ windows and the aisles of CVS might lead you to believe otherwise, not everyone is celebrating Easter this weekend. Today is also Passover, an important festival for America’s 5.3 million Jews. And about 64 million Americans identify as neither Christian nor Jewish.
The same diversity is true of the job market. As I’ve written previously, certain groups, such as racial minorities, young people and the long-term unemployed have disproportionately suffered in the aftermath of the Great Recession. Another factor that matters is where you live: If we break down the E-P ratio by state, we see a remarkable range of experiences, with some areas of the country thriving while others stagnate—or regress.
The state with the highest E-P ratio is North Dakota, at 70.7 percent. It’s followed by Nebraska (68.8 percent), Iowa (67.7 percent) and Minnesota (67.6 percent). Indeed, in each of the 10 states with the highest E-P ratio, nearly seven in ten adults is working. That’s not to say all of these places offer the best jobs, highest wages or most enjoyable standards of living, but it does suggest most residents who want work can find it — an important component of well-being.
At the other end of the spectrum, West Virginia has the lowest E-P ratio, at 48.9 percent; more than half of adults in the Mountain State are sitting idle. Things are nearly as bad in Mississippi (50.4 percent), Alabama (53.1 percent) and New Mexico (54.2 percent).
Static, aggregate snapshots like these give us an indication of how state labor markets are faring in broad terms. But what they don’t do is account for idiosyncratic characteristics of each state. For example, West Virginia has an “artificially” low E-P ratio because its population is older than that in other states, while North Dakota has gotten a dramatic boost from its booming oil industry. In addition, snapshots don’t tell us how conditions are changing over time.
Thus, perhaps a more relevant way of assessing state labor markets is to compare how their E-P ratios have changed since 2007, after accounting for demographic factors that influence labor market participation. Fortunately, the tools of econometric analysis allow us to do exactly that, and the results are presented in the figure below.
On the horizontal axis is the actual change in the E-P ratio for each state between 2007 and the most recent 12-month period (March 2014 to February 2015). Each state is represented by a bubble whose size is proportional to its population. As you can see, all states have a lower E-P ratio today than they did in 2007, with the exception of D.C., where the ratio is unchanged.
On the vertical axis is the “unexplained change” — that is, the portion of the E-P ratio change not accounted for by changes in a state’s population, age structure, racial composition, gender balance, educational attainment, urbanicity and the industries and type of jobs its workers have.
The larger the unexplained change, the better a state is doing relative to other states — after accounting for the deck of cards it has been dealt. By this measure, Texas is the top performer: its E-P ratio is 1.5 percentage points higher today than we would expect based on the experience of states on average. Maine (+1.2 percent), Oregon (+1.0 percent) and Missouri (+0.9 percent) are not far behind. And, perhaps most noteworthy — and highlighting the tough hand some states must deal with — West Virginia comes in fourth, at 1.1 percent.
Performing worst by this standard are New Mexico (-1.7 percent), New York (-1.5 percent), South Carolina (-0.9 percent), Illinois (-0.8 percent) and South Dakota (-0.8 percent).
It’s beyond the scope of a relatively simple analysis like this to identify why some states are beating E-P expectations and why some are falling behind. It could have to do with things like housing costs, occupational demand, aesthetic preferences or even policy choices — or it may depend mostly on plain good luck. Whatever the case may be, the wide variation in state experiences is nevertheless a reminder that what holds for the United States as a whole is often not reflective of the ups and downs the residents of diverse localities face.
Or, to put things in seasonal terms, each draw from the jellybean jar brings a different mix of flavors — and we must be better attuned to the needs of those who come out with a handful of purple.
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