By Morton J. Marcus, an economist formerly with the Kelley School of Business at Indiana University
Again I apologize for filling a column with numbers. But there is no other way of depicting the unemployment situation in Indiana. As we have learned in the current financial crisis, the lack of knowledge is root of calamity.
In August, the latest date for which we have information, Indianaʼs unemployment rate was 6.4% compared to 4.5% a year earlier. Nationally, the unemployment rate had gone from 4.7% in August 2007 to 6.1% this year.
This stronger movement in the unemployment rate for Indiana than in the U.S. is typical at the start of a recession. We make the products firms and people can stop buying when money gets tight: for example, parts for autos and appliances.
We went from having the 21st highest unemployment rate in August 2007 to 15th place among the states in 2008. Our unemployment rate increase of 1.9% (6.4%-4.5%) was among the top dozen changes. Arkansas, Kansas, and Oklahoma were the only states to see their unemployment rates fall in that yearʼs time.
The unemployment rate is obtained by taking the number of persons unemployed and dividing it by the number of persons in the labor force. (The labor force refers to people living in a place regardless of where they work. It is simply the number of persons holding jobs plus the number actively seeking employment.) If the percent growth in the number employed does not equal the percent increase in the labor force, the unemployment rate rises.
In Indiana this past year, the labor force grew by 39,000 (1.2%) while the number holding jobs declined by 25,000 (-0.8%). When added together, the growth in the labor force and the decline in employed persons equal the 64,000 growth in the number of unemployed persons.
This does not mean that every person entering the labor force became unemployed. Some found jobs while others who had jobs lost them. For Indiana to have avoided an increase in its unemployment rate during the past twelve months, it would have had to create 37,000 jobs but instead it lost 25,000. Add those two numbers together and you get the 64,000 increase in the number unemployed.
But the state data hide as much as they reveal.
In August 2007, the highest unemployment rate (7.0%) in the state could be found in Fayette County; only 26 counties had unemployment rates above 5.0%. Fayette saw its unemployment rate rise to 11.2% in August 2008 while 80 counties now exceeded 5.0%.
Economists differ when the unemployment rate is too high. In the past, rates ranging from 3.0% to 7.5% have been suggested as the danger point. But it may be that rapid changes in unemployment rates are as serious as sustained high levels of unemployment. If that is the case, many Hoosier counties have been through a traumatic year.
During the past year, the number of persons employed declined in each of Indianaʼs 92 counties. The greatest loss was 7,600 in Marion, the largest county. Next was Elkhart County with a decline of 4,600 followed by Lake at 3,600.
But the 7,600 increase in the number unemployed Marion County had less effect on the unemployment rate than the decline of 4,600 in Elkhart County. Marion Countyʼs unemployment rate went from 4.6% to 6.2% while Elkhartʼs more than doubled from 4.4% to 8.9%. Elkhart Countyʼs 4.5% rise in its unemployment rates between 2007 and 2008 was exceeded only by Adams Countyʼs 5,4% (4.0% to 9.4%).
The diversity of unemployment rates across the state is mirrored in the data for individual cities. For example, in Elkhart County, the City of Elkhartʼs unemployment rate went from 6.0% to 10.4% and Goshen climbed from 4.4% to 8.8%. This means that the balance of the county had unemployment rates of 3.8% in 2007 and 8.2% in 2008. These geographic differences may be helpful in forming policies for economic relief and ultimately economic development.