Morton J. Marcus, an economist formerly with the Kelley School of Business, Indiana University
How much is too much? When do we start to worry? When can we relax and say, "Thank goodness, it's over,"?
These are questions racing through our minds as we swim against the flood of economic news now testing our courage. Each day seems to bring new evidence of a serious downturn in the American and Hoosier economy. Stock prices are falling and unemployment is rising. Companies are closing and our local governments are cutting services.
For tens of millions of Americans, these are new experiences. They do not remember the last great recession in 1982. Let's look at Indiana's unemployment experiences then and now:
The unemployment rate for Indiana in October 2008 was 6.0%. This means that of the 3.2 million Hoosiers in the labor force, three million have jobs and 200,000 are looking for work. If people do not have jobs and are not looking for work, they are defined (by the federal government) as not unemployed; they're out of the labor force.
Is 6.0% unemployment an important level? The U.S. figure is 6.1%; we can rightfully claim that we are below the rate for the nation, but does that matter? In economics there are no magic numbers. But, if we had 5% unemployment, there would be approximately 32,000 more Hoosiers at work.
(These data have not benefitted from seasonal adjustment to decrease the effect of normal variations over the course of the year. The seasonally adjusted unemployment rate in October for Indiana was 6.4% and 6.5% for the nation. Whichever set of data is used, the issues remain the same.)
Yes, our unemployment rate is lower than those of our five neighboring states. Is this supposed to indicate some inherent superiority on our part?
Relative to our neighbors, our position has deteriorated over the past year. In October 2007, Indiana's unemployment rate was 28th in the nation at 4.1% while Kentucky (the best of our neighbors) ranked 39th at 4.8%. This year in October, Indiana ranked 32nd and Kentucky (still the best of our neighbors) ranked 36th. Our margin of "regional excellence" is shrinking.
But these are small differences of little significance compared to what we experienced in 1982. In November of that year, Indiana's unemployment rate was (a seasonally adjusted) 12.8% and we had 334,000 persons unemployed. This was part of a 26 month-long stretch from October 1981 to November 1983 where the unemployment rate in Indiana was 10% or worse. We had last seen 6% in June 1979 and would not be back down to that level until July 1987.
The drama of the current recession is that it is, thus far, deeper and swifter than the 1982 collapse. In the past year, Indiana's labor force has grown by 39,700 persons (1.2%) compared to a decline of 30,500 (-1.2%) in 1982. Back then the Indiana economy had seen double digit unemployment rates for over a year. We have yet to see 7%.
The number of persons employed dropped by 24,800 (-0.8%) in the past year while the loss was 54,500 (-2.3%) in 1982. Finally, the number of unemployed Hoosiers grew by 23,900 (8.7%) in 1982 while it boomed by 64,600 (45.2%) in the past year.
This recession looks like more of a shock, but may be of shorter duration and severity than the 1982 decline.