Did North Carolina’s Unemployment Really Fall Below 10%? (Brief Study on Labor Force Participation)

NOTE: The following represents the analysis-based opinion of the author and do not reflect those of his employer or any other affiliations

By Kenneth Hunter, Guest Blogger

The Bureau of Labor Statistics released July 2010 unemployment statistics at the State level this morning. Their published findings show North Carolina’s unemployment rate at the seasonally adjusted rate of 9.8% (unadjusted rate 9.9%). This is the first time since March 2009 that the adjusted rate has been reported below 10% for the state.  The report also showed that the State added about 5,500 jobs in July (14,132 net gain over the past 12 months).

This good news aside, statistics also show a continued decline in the size of the overall state labor force (8,100 fewer workers in July, and 47,000 fewer in the last 12 months).  Because the BLS does not provide an estimate of the overall workforce age population, we do not know how their adjustments in labor force represent their view on labor market participation. However, we do know looking at national reports that labor force participation was reduced in a statistical manner throughout the course of the recession, though Federal reports show that the number is being adjusted upward in recent months.

Labor market participation is adjusted by officials to account for the attitudes of those out of work, as well as reflect changes in citizen behavior and the impact of historic and demographic shifts.  Over time, labor participation has increased significantly to reflect the rise of the baby boomer workforce and the transition toward two-job households. Taking into account temporary adjustments that reflect periods of full and sparse employment over the past 25 years, our available labor force has averaged a 66-67% participation rate over the past 25 years. This average is still above the actual labor participation reported by the BLS for national statistics, indicating that the posted unemployment rate is probably understated.

The same is true, and even more noticeably, for North Carolina. Without the benefit of updated estimates on the size of the available labor force, we are forced to use annual population estimates for the 16 to 70 age group, as updated by the U.S. Census Bureau. In order to “satisfice” with limited time and resources, as well as account for variances in the workforce due to seasonal factors (i.e., school, summer vacation, holidays), a comparative month average of the participation rates from 2000 to 2007 provides a reasonable basis for evaluating current participation rates, and thus the validity of posted unemployment rates.

Based on this model, the July average labor participation rate in North Carolina (2000 to 2007) was 72.5%. For July 2010, the BLS reported participation at 67.9%, the lowest participation rate in more than a decade. This is a significant difference from the applicable average, meaning that the corresponding unemployment rate (15.7%) is significantly higher than published (9.9%).

As the chart shows, it is plausible that unemployment in North Carolina has resumed an increase, a concept more in line with recent reports on growing first-time claims for unemployment. More importantly, the differential between published rates and those utilizing recent averages for labor force participation suggest a more systematic problem with the State economy that needs immediate attention. If the BLS’ participation estimates are correct, the difference represents the substantial growth of a long-term unemployed population that will place greater burden on established entitlements.

Regardless one’s opinion of the validity of the alternate analysis with respect to measuring unemployment, the exercise makes it clear how far we really are from a clear path toward economic recovery, especially in the Tar Heel State.

ASPA Member Kenneth Hunter is an MPA Graduate of The University of Georgia with more than a decade of experience in local government finance. Kenneth is the Budget & Evaluation Manager for the City of Rocky Mount, North Carolina, and serves on the Executive Committee of theAssociation for Budgeting & Financial Managementand is a Board Member and Webmaster for the North Carolina Local Government Budget Association.

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