Are the Michigan and Ohio Employment Revivals as Good as the Unemployment Rates Indicate?

By Matt A. Mayer

The most recent recession began in December 2007. In January 2008, the U.S. Bureau of Labor Statistics (BLS) listed Michigan’s and Ohio’s unemployment rates at a low 4.1 percent and 5.7 percent, respectively.[1] BLS reported Michigan’s and Ohio’s unemployment rates in May 2012 at 8.5 percent and 7.3 percent. These figures are 5.7 points less than the high reached in August 2009 when Michigan’s unemployment rate came in at 14.2 percent and 3.3 points less than the high reached in July 2009 when Ohio’s unemployment rate stood at 10.6 percent. These turnarounds are quite impressive.

But, are these revival stories true? Though both states have seen marked improvements, the current unemployment rates overstate the recoveries in Michigan and Ohio because those rates fail to account for everyone.

In January 2008, according to BLS, Michigan employed 4.647 million workers.[2] In July 2009, Michigan possessed just 4.151 million workers. By May 2012, Michigan’s job market had added 118,000 workers, hitting 4.269 million workers. That means Michigan needs to add another 378,000 jobs before “fully recovering” from the recession.

In January 2008, Ohio employed 5.614 million workers.[3] In July 2009, Ohio possessed just 5.310 million workers. By May 2012, Ohio’s job market had added 76,097 workers, hitting 5.386 million workers. That means Ohio needs to add another 228,000 jobs before “fully recovering” from the recession.

How did the unemployment rates improve so much? The answer is a shrinking labor force. For example, in 2009, the unemployment rate in Ohio stood at 10.6 percent from July to December despite employing nearly 50,000 fewer Ohioans simply because the labor force declined by almost 60,000 people, with the number of unemployed only decreasing by 6,000 Ohioans. The tables below details the facts:

 

Michigan

 

Ohio

 

Because Michigan’s and Ohio’s labor forces have dropped by 6.7 percent and 2.3 percent, the BLS unemployment rates make those job markets look healthier than they really are.

As Michigan has only employed 117,240 more people since August 2009, the ranks of the unemployed have dropped by 291,813. For Ohio, as it has only employed 76,097 more people since July 2009, the ranks of the unemployed dropped by 202,416. The reality is that many residents of Michigan and Ohio have taken themselves out of the job market because they stopped looking for work. Another unquantifiable factor of labor force shrinkage is the small portion of residents who have left those states to join the labor forces in other states.

Out of all 50 states and the District of Columbia, Michigan and Ohio are the only states where the labor force decline exceeded the increase in the number of unemployed from January 2008 to May 2012.[4] Not coincidentally, Michigan and Ohio experienced the worst private sector job market losses from 2000 to 2010.

 

Where Did Those Workers Go?

 

These two data points matter because neither the current labor force nor the current number of unemployed capture those individuals who used to be in the labor force. There are 295,800 workers in Michigan and 49,528 workers in Ohio who remain unaccounted for in the current unemployment rates.

To properly account for those missing former workers, the unemployment rate calculation must include them. The BLS U4 unemployment rate measures “total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers.”[5] See the table below for how the U4 rate misses the mark for both Michigan and Ohio.

U4 Rate Misses the Mark

For Michigan, the U4 rate understates the real unemployment situation because it ignores 200,800 people. For Ohio, the U4 rate is very close to the real unemployment situation, but slightly overstates the problem because it adds roughly 10,472 non-existent people to the rolls. Here is what the numbers look like when the unaccounted for workers become the U4 Discouraged Workers:

 

Revised U4 Rate Just About Right

The punch line is that the true unemployment rates in Michigan and Ohio are most likely 13.9 percent and 8.1 percent, respectively. This means that the current unemployment rate for Michigan is off by 5.4 percentage points, with Ohio’s unemployment rate is off by 0.8 percentage points.

More to the point, if the true unemployment rate in Michigan is 13.9 percent, than Michigan’s jobs recovery is grossly exaggerated, as the unemployment rate likely only has dropped 0.3 percentage points. In Ohio, the recovery from the 10.6 percent unemployment rate is much closer to what proponents are claiming, but not nearly as strong as advertised.

Admittedly, this method likely overstates by a small degree the unemployment rates because some of those unaccounted for workers no longer in the labor force have moved to other states. This unknown factor, however, given current low mobility rates, represents a small portion of the labor force decline. For example, according to the U.S. Census Bureau, Ohio has the third highest percentage of current residents born in-state.[6] More broadly, the mobility rate in the United States from 2010 to 2011 was just 1.9 percent.[7]

Without a doubt, Michigan and Ohio have added jobs over the last few years. The labor force in those states, however, has declined since April 2009. Failing to account for all the unemployed workers misrepresents how Michigan and Ohio really are doing. That false narrative may serve elected officials well, but it does little to help Michiganders and Ohioans make decisions about their futures. We must make important choices in November on a wide range of issues—from who will be our President and our U.S. Senators to what local tax increases to support. Thus, having a clear picture of how Michigan and Ohio really are doing is critical.

 

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