Jobless Rate Improves, but Labor Dropouts Skew Numbers
March 4, 2013
Jim Stratton, Orlando Sentinel
As the state unemployment rate inches down, Gov. Rick Scott rarely misses an opportunity to broadcast the news, sometimes blasting out four or five news releases in a day -- such as this one from January's jobless report.
"Florida's unemployment rate is down to 8 percent, its lowest in four years. ... The changes we are making to improve our state's business climate are helping Florida families pursue the American dream."
But while there has been real improvement on the jobs front, the movement on unemployment is not as dramatic as it appears.
That's because part of the declining jobless rate is not a function of new hiring. It is tied instead to the fact that the share of Floridians in the labor market has been falling since the housing bubble burst.
The state's "labor-force participation rate" -- the percentage of working-age Floridians in a job or looking for one -- has slipped from 64.2 percent in 2007 to 61.1 percent in 2010 and 60.2 percent in December 2012. Florida's average labor-force participation rate for all of 2012 was 60.4 percent, the lowest annual level since 1985.
The declining rate is important because it artificially amplifies progress on unemployment. With fewer people in the labor pool, it is mathematically easier to drive down the jobless rate. In Florida's case, the impact is significant, said Rollins College economist William Seyfried.
The unemployment rate fell from a high of 11.4 percent in February 2010 to 8 percent in December 2012. But if the labor-force participation rate had remained constant, December's jobless rate would have been more than 2 percentage points higher, Seyfried said.
"If you want to explain why the unemployment rate declined from its peak," he said, "over two-thirds of the decline was due to the declining participation rate."
Florida Chief Economist Rebecca Rust disputed that conclusion, saying, "It's not possible to say" what the unemployment might be if the labor-force participation rate held steady. Rust said it was unrealistic to assume that everyone who'd left the work force would be unemployed if they'd kept looking for a job.
"You also can't make the assumption," she wrote in an email, "that a person that is no longer in the labor force was previously unemployed."
Florida's experience mirrors what's been happening nationally.
The U.S. labor-force participation rate declined slowly during the first half of the decade, but its annual average remained at 66 percent or more through 2008. When the economy collapsed, the participation rate fell too, averaging 63.7 percent in 2012. It hasn't been that low since the early 1980s.
The shrinking number helped push December's national jobless rate down to 7.8 percent. Had the participation rate remained unchanged from February 2010, the unemployment rate would have been 9.7 percent, Seyfried estimates.
The numbers undermine claims by both Scott, a Republican, and President Barack Obama, a Democrat, that their policies have driven down unemployment. If anything, they show how hard it is for elected chief executives to reverse the effects of a deep and brutal recession.
Still, the labor market has been getting better.
During the second half of 2012, Florida added more than 53,000 new jobs, officials estimate. Since 2010 -- a month before Scott took over -- private-sector jobs have grown by more than 188,000.
In Metro Orlando -- where the size of the labor force has changed little in six years -- about 46,600 jobs have been added since the market bottomed out in 2010. The number of unemployed has fallen from an annual average of 125,200 in 2010 to 96,400 last year, a drop of 23 percent.
"Labor-force participation rate aside, there's definitely been improvement," said Chris McCarty, director of the University of Florida's Bureau of Economic and Business Research. "There's no doubt about that."
Two forces are driving the labor-participation rate down, according to a 2012 report by the Federal Reserve Bank of Kansas City. The first are long-term demographic shifts -- aging baby boomers retiring, young people staying in school longer -- that explain the gradual decline during the past decade. The second is related directly to the recession.
Economists say many people -- discouraged by historic levels of long-term unemployment -- have simply stopped looking for work. They've climbed out of the labor pool, choosing, perhaps, to retire early or return to school.
Lake Mary's Karen Lupton took that route last year when she went back to study radiology. Out of work since 2009, she felt the best way to start a new career was to learn new skills. A few months ago, she returned to the work force as a part-time employee at Universal Orlando.
It's "not easy pretending to be 20 again," she wrote in an email. "And not as much fun."
The Federal Reserve report concluded that the economic collapse accounted for about half of the recent decline in labor-force participation.
"An unprecedented number of people," said University of Florida economist David Denslow, "have been unemployed for a year or more, have lost skills and have given up."
Source: (c)2013 The Orlando Sentinel (Orlando, Fla.) Distributed by MCT Information Services