Ohio’s Stated Unemployment Rate Moves Higher – Real Unemployment Rate Even Higher

By Matt A. Mayer

From December 2012 to January 2013, the U.S. Bureau of Labor Statistics reported that Ohio’s unemployment rate climbed from 6.7 percent to 7.0 percent. In January 2008, BLS listed Ohio’s unemployment rate at a low 5.7 percent.[1] BLS reported Ohio’s unemployment rate in January 2013 at 7.0 percent. This figure is 3.6 points less than the high reached in July 2009 when Ohio’s unemployment rate stood at 10.6 percent.

Though the state has seen marked improvement, the current unemployment rate overstates the recovery in Ohio because it fails to account for everyone who has been in the employment system in Ohio.

In January 2008, Ohio employed 5.61 million workers.[2] In July 2009, Ohio possessed just 5.3 million workers. By January 2013, Ohio’s job market had added 38,091 workers, hitting 5.34 million workers. That means Ohio needs to add another 266,918 jobs before “fully recovering” from the recession.

How did the unemployment rate improve so much? The answer is a shrinking labor force. From 2008 through January 2013, Ohio’s labor force lost more workers than every state except Michigan. From January 2011 to the most recent data, Ohio’s labor force lost more workers than every state – twice as much as the next state. It is the shrinking labor force that is driving down Ohio’s unemployment rate, not job gains. The tables below details the facts:

Ohio

Because Ohio’s labor force has dropped by 3.5 percent, the BLS unemployment rate makes the job market look healthier than it really is.

As Ohio only employed 38,091 more people since July 2009, the ranks of the unemployed dropped by 230,416. The reality is that many residents of 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 January 2013. 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 rate nor the current number of unemployed capture those individuals who used to be in the labor force. There are 142,249 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.”[3] See the table below for how the U4 rate misses the mark for Ohio.

U4 Rate Misses the Mark

State	Labor Force	U4 Rate	U4 Raw Number	Officially Unemployed	U4 Discouraged Workers	Unaccounted for Workers	Where Are They?
Ohio	5,739,900	7.7%	441,972	399,073	42,899	142,249	99,350

For Ohio, the U4 rate understates the real unemployment situation because it ignores 99,350 people. Here is what the numbers look like when the true unemployment rate is applied to the U4 calculation:

Revised U4 Rate Just About Right

State	Labor Force	U4 Rate	U4 Raw Number	Officially Unemployed	U4 Discouraged Workers	Unaccounted for Workers	Where Are They?
Ohio	5,739,900	9.4%	540,696	399,073	141,623	142,249	626

The punchline is that, when accounting for all the workers who are unemployed and who have left the labor force, the true unemployment rate in Ohio is closer to 9.4 percent. Failing to account for all the unemployed workers misrepresents how Ohio really is doing and, given the budget issues currently before the Ohio legislature, having a clearer picture of how Ohio really is doing is critical.