Sunday, November 04, 2007

Slow Job Growth is Reducing Our Labor Force

The unemployment data for September that were released last week showed that for the eight month in a row, the unemployment rate in the Pittsburgh Region had decreased from the same month a year ago. In fact, the Pittsburgh Region has had one of the largest decreases in the unemployment rate this year among the top 40 regions in the country. The average unemployment rate here between January and September of 2007 was 4.4%, compared to 5.1% during the same 9 months in 2006.

That’s really good news, right? Unfortunately, no – as it turns out, it’s exactly the opposite.

The unemployment rate in the Pittsburgh Region has been decreasing not because people are getting jobs, but because people are leaving the workforce, and many of them may be leaving the region altogether.

Many people believe that the unemployment rate is the percentage of the population who don’t have a job. But it’s actually the ratio of the number of people who are looking for work divided by the “labor force,” and the labor force is defined as the number of people who are either working or who are looking for work. Every month, the labor force changes size because people either start looking for work or stop looking for work.

This means there are two different reasons why the unemployment rate can go down. One is that people who are looking for work find jobs. But the unemployment rate will also go down if people who can’t find jobs give up and/or move away, i.e., if they leave the labor force entirely.

What’s happening in Pittsburgh? The Pittsburgh Region is one of only three regions in the country where unemployment has decreased primarily because people left the labor force, rather than because of an increase in employment. Comparing the first nine months of 2007 and 2006, the number of unemployed people in the Pittsburgh Region decreased by 8,100, but the number employed only increased by 2,200. The primary reason for the decline in unemployment was that the number of people in the Pittsburgh labor force decreased by 5,900 (a 0.5% decrease). (You can see a table of the unemployment, labor force, and employment changes among the top 40 regions here.)

In contrast, Dallas saw its unemployment rate drop by an amount similar to Pittsburgh’s – from 5.0% in the first nine months of 2006 to 4.3% in the same period in 2007. But there, the labor force increased by nearly 36,000 (a 1.2% increase), and employment in Dallas increased by over 56,000, enough to reduce unemployment by over 20,000 and still absorb the 36,000 new workers who joined the labor force.

In fact, the Pittsburgh Region has had the largest percentage reduction in labor force this year of any of the top 40 regions in the country. That’s why we’ve had such a large decrease in the unemployment rate. It’s hard to know how much of this is due to retirements, how much is due to people becoming “discouraged workers” (i.e., no longer looking for work), and how much is due to people leaving the region entirely, but anecdotal evidence suggests that many are giving up and going elsewhere.

It’s not surprising if they’re discouraged – there were only 3,000 more jobs in the Pittsburgh Region in September than a year ago, a growth rate of only a quarter-percent, and we still have 5,000 fewer jobs than we did in 2001. Job growth in Pittsburgh was less than one-fourth the national rate, and was slower than all of the top 40 regions except for Cincinnati, Cleveland, Detroit, and Providence. And it’s getting worse, not better: September had the slowest job growth in the past 16 months (since May of 2006).

What's causing our slow job growth? It’s not USAirways cutbacks or a few major plant closings. The economic malaise cuts across almost every sector of our economy.

The most likely causes are an uncompetitive state business climate and insufficient support for entrepreneurship. And unless we fix those things, we can expect to lose more of our labor force in the months ahead.


Anonymous Anonymous said...

Six months have past since you posted this analysis. Is there any reason to believe trends have improved since then? Are we just the first
drops of being flushed down the dain with the rest of the country following in the whirpool behind us?


4:26 PM  
Blogger Harold D. Miller said...

Actually, things have improved dramatically since last fall. I'll try to provide an updated review of where things stand soon.

9:34 AM  

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