Data Sense: Unemployment rate falls as labor force participation declines

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According to the latest data from the Colorado Department of Labor, the unemployment rate in Routt County continued its gradual descent through the end of 2013. CDL figures place the December 2013 unemployment rate at 4.5 percent. That’s an impressive drop from the December 2012 rate of 6.3 percent and continues the downward trend in the 12-month moving average unemployment rate that began in October 2012.

Data Sense

This monthly column is written by Yampa Valley Data Partners. It publishes on the first Sunday of the month in the Steamboat Pilot & Today. Read more columns here.

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Brandon Owens

But the unemployment rate alone doesn’t tell the whole story about the local labor market. In particular, it doesn’t provide insight into whether the unemployment rate is declining because more jobs are being created or because people have exited the labor force. In fact, if we include those who have exited the labor force back into the calculation, the unemployment rate jumps to 8.9 percent. This certainly could be an indicator that the local labor market is not quite as healthy as the current monthly unemployment rate might lead us to think.

The unemployment rate is a combination of two separate factors: the size of the civilian labor force and the number of jobs. The unemployment rate is equal to labor-force size minus the number of jobs divided by labor-force size. This rate represents the percentage of those in the labor force that are without a job. To be included in the labor force, one must either have a job or actively be seeking one.

Here’s the rub. Those individuals who do not have a job and have stopped looking for work are no longer counted as part of the labor force. So when unemployed people stop looking for jobs, the size of the labor force shrinks and the unemployment rate drops. In fact, it’s possible for the unemployment rate to drop without any new jobs being created at all, and that’s what’s happening in Routt County.

In 2009, the average annual size of the Routt County labor force was 15,296. The average annual number of jobs in 2009 was 14,317. Thus, the average annual unemployment rate during 2009 was 6.4 percent ([15,296 – 14,317]/15,296). Compare this to 2013 when the average annual size of the Routt County labor force was 14,616. The average annual number of jobs in 2013 was 13,765. Thus, the average annual unemployment rate during 2013 was 5.8 percent ([14,616 – 13,765]/14,616). The reduction in the unemployment rate between 2009 and 2013 is surprising because monthly employment peaked in January 2009 at 16,380 and only reached 14,677 in January 2013. There were fewer jobs in the county in 2013, yet the unemployment rate went down.

As it turns out, the unemployment rate actually dropped between 2009 and 2013 because the labor market shrunk by a greater amount (680 people) than the reduction in jobs (552 jobs). There are two primary ways that the labor force shrinks — people either stop looking for jobs or they move away. Both happened in Routt County between 2009 and 2013, but the majority of the decline in the labor force occurred because people stopped actively seeking jobs.

According to data from the Colorado Department of Local Affairs, the Routt County working-age population (people ages 16 to 64) in 2009 was 17,166 people, compared to 16,988 in 2013. During this same period, the percentage of the working-age population with jobs — known as the “labor-force participation rate” — declined from 89 to 86 percent. So the drop in population took 178 people out of the labor force and the reduction in labor-force participation took 502 people out of the labor force. Thus, almost three quarters of the labor-force reduction was because of the drop in labor-force participation rather than the decline in working-age population. Note that the small drop in population is likely because of a combination of migration and our aging population — what we have previously called “The Graying of Yampa Valley.”

What would the current unemployment rate be if we included those individuals who have dropped out of the labor force? We can calculate this if we use the 2009 labor force (adjusted for the change in population) and the 2013 jobs. When we do this we find that the Routt County “adjusted unemployment rate” is actually 8.9 percent ([15,296 – 178 – 13,765]/[15,296 – 178]). The bottom line here is that if we include those who have exited the labor force, the actual unemployment rate is a lot higher.

The first step in making accurate observations about the local employment situation is to really understand what’s going on inside the numbers. We now understand that the recent reductions in the local unemployment rate are primarily driven by the decline in the labor-force participation rate, not job growth. The labor-force participation rate in combination with the unemployment rate tells us a lot more about the health of the local labor market than the monthly unemployment rate alone.

Brandon Owens is an independent contractor for Yampa Valley Data Partners.

Data Sense - By the Numbers

Comments

Scott Wedel 6 months, 3 weeks ago

Good article.

Though, the lack of information presented on the data on the size of the local workforce between 2009 and 2013 hurts the article. It was hardly a boring same trend between Jan 2009 and 2013. The size of the local crashed and partially recovered during that time frame.

Also, as a desirable resort area with a higher cost of living, the size of the local workforce is always influenced by the availability of jobs. A substantial portion of people without jobs have better support systems and can live cheaper elsewhere so they move away when unemployed.

A labor rate participation of 89% is exceptionally high and it changing to 86% as baby boomers retire is hardly unexpected or indicate economic weakness.

So to present data apparently making the case that local unemployment is closer to 8.9% is simply wrong. Anyone operating a local business or looking for work would recognize the local economy as having a low unemployment rate. That a good worker is generally able to find a job fairly quickly.

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mark hartless 6 months, 3 weeks ago

Yes, Scott. Everyone that truly wants a job has one. No problem there.

Everyone that wants to live by plundering others seems to have no problem getting by as well. THAT's the problem.

If you look at the numbers of folks these days that are, for example, listed as disabled, it is way high compared to what it was a generation ago. This is ominous. Today, with equipment, hydraulics, air wrenches, power steering, air conditioning, refridgeration, etc, etc, etc, there are STILL more people that can't seem to cope with getting their ass to work than back when the word W-O-R-K actually meant something. To me this is an indication of the pitifully helpless state (mostly mental) of the average American.

Charles Murray's book "Comming Apart" examines these trends. The picture is NOWHERE NEAR as rosy as you make it out to be, Scott.

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John Weibel 6 months, 3 weeks ago

Yes Scott it is hard to find employees in season, though the under- employed, those who could be doing something much more skilled are driving shuttle vans, washing dishes, etc, when they could be framing homes, etc..

So the job market is booming for low skilled workers, when those jobs come open for long term jobs with good benefits, the number of applicants gives the employer far greater selection than in 2009.

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Scott Wedel 6 months, 3 weeks ago

Routt County labor participation rate is 86%. Thus, we have an extremely high labor participation rate and we have relatively few working age adults on disability.

The article was making the argument of that the local unemployment rate could be considered to be 8.9% and that is what I was challenging. Underemployment is a serious issue and is especially bad in resort areas because some people move here for the lifestyle and then see how long they can afford to live here. I once knew a graduate of Smith College, a highly selective college, whom was working as landscaping hired help. She wouldn't consider working in that job anywhere other than a resort area.

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mark hartless 6 months, 3 weeks ago

But here she would be given affordable housing help, and people would opine for her plight, even though she was here of her own volition...

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mark hartless 6 months, 3 weeks ago

Many people can't find a job for the same reason that a bank robber can't find a cop...

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John Weibel 6 months, 3 weeks ago

So Scott, done with this topic, but I am too lazy to look up the global warming fear mongering letter to the editor to post a link to this TED talk.

Watching, this talk leaves me to believe, that something else is going on in interstellar space to cause the heating and cooling of the earth, and other planets as the ice caps on mars appeared to be melting sometime between 2000-2010 - leading me to change my beliefs that CO2 is the problem and something else was going on.

http://www.ted.com/talks/henry_lin_what_we_can_learn_from_galaxies_far_far_away.html?utm_source=newsletter_weekly_2014-03-01&utm_campaign=newsletter_weekly&utm_medium=email&utm_content=talk_of_the_week_image

By the way, we are on the verge of finding a new energy source that will be sustainable. I am looking at investing in this technology (http://biomassmagazine.com/articles/9847/researchers-convert-algae-to-crude-oil-in-minutes) in addition they have for the first time ever gotten more energy out of a fusion reaction than was put in.

So the fear that that we are going to destroy ourselves because of CO2 emissions is far overstated, the bigger fear, imo, is that we have depleted our topsoil and will see far greater drought and flooding problems because of it. In addition is the Phosphorus problem.

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Scott Wedel 6 months, 3 weeks ago

On the scale of our solar system, there is not enough dark matter to affect the orbits of the planets, meteoroids and other objects. But looking at the universe in terms of galaxies and observing their motion, then either gravity is stronger in those places or there is dark matter. Because the distances are so vast, one dark matter particle per cubic mile could be enough to come up with the added mass needed to explain the gravitational pull being observed.

It is called dark matter because atoms and such that we know about would interact with the light passing through and we could observe that. Instead it is called dark matter because it doesn't interact with light, x-rays and so on.

Dark matter is not affecting the climate on Mars or Earth because there is simply extremely dark matter near us. The mass of a feather is far more than all of the dark matter in our atmosphere.

As for CO2 and climate change, I suggest that because there are many different technologies that can provide clean energy in the future is why many say we should be doing more about controlling greenhouse gases now. We do not inevitably have to reach 500 or 600 ppm of CO2 and deal with all the resulting climate effects.

Algae has long held out promise of being a pretty effective process of converting sunlight and CO2 into an usable fuel. It has just proved to also be sensitive to contaminants and so what looks great in a lab has failed when trying to scale up and produce at affordable costs.

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