Among this week’s big news was the announcement of unemployment rate for December for Minnesota. Virtually every media outlet heralded the fact that the state’s unemployment rate rose to 4 percent, the highest in five years. At the risk of appearing callous, let me say one thing: 4 percent unemployment isn’t that bad.
I don’t mean to minimize the difficulty faced by anyone who has lost a job and who struggles to make ends meet. Being laid off is one of the most demoralizing experiences possible. Feeding, clothing and sheltering a household without a steady paycheck can be hell. Nor are we necessarily past the worst. The announcement on Wednesday that the Federated Department stores would dispose of Minnesota-based Fingerhut means that another 4,700 jobs may be in peril.
Still, things have been much worse.
A rate of 4 percent is the highest in five years, but we were spoiled by month after month of unusually low rates from 1997 to 1999. If we look at the 15-year period from August 1979 to May 1994, the rate dipped below this level only a few times—and that was just to 3.9 percent in isolated months.
We climbed past 5 percent in January 1980 and stayed there till December 1987. A child born the month we broke 5 percent would have been in the second grade before we dropped below that level again. Such an eight-year span is two full presidential terms or the intervals between three Olympics.
Moreover, in that bleak decade of the 1980s, unemployment surpassed 9 percent for three consecutive months.
In other words, it is too bad that more people have lost their jobs and that job-seekers find their search more difficult. But Minnesota labor markets are still quite robust compared to longer-term averages.
There is another positive note in the middle of apparent gloom. We have a higher proportion of two-earner households than we did decades ago. The Ward and June Cleaver model of the 1950s may occasionally seem idyllic to young couples with one or two preschoolers and two full-time jobs. But the traditional one-earner household was particularly vulnerable to the breadwinner’s loss of employment.
Minnesota has one of the highest female labor force participation rates in the nation and the world. The fact that so many households have two wage earners cushions the blow somewhat when one is laid off.
When I teach introductory macroeconomics, I give students a homework problem that requires them to calculate an unemployment rate. Then I ask them, “If unemployment increases one percentage point from the level you calculated, what is the percentage increase in the number of unemployed people?”
More than half of the class usually look at me blankly or quickly answer, “1 percent.” They don’t get it. So we have to go through a simple example. If you have a labor force of 1,000 people and 3 percent unemployment, then 30 people will lack work. If the jobless rate then increases to 4 percent, the number of unemployed will rise to 40. An increase from 30 unemployed workers to 40 is an increase of 33 percent, not 1 percent.
Minnesota began 2001 with an unemployment rate of 3 percent and ended it with 4 percent. There was also a slight increase in the total labor force. But the number of unemployed people went from 84, 913 to 114,055 in 12 months. That is a 34 percent increase in unemployed individuals in 12 short months.
So if you are a state employee handling unemployment compensation cases or run a food shelf or emergency shelter, that small 1 percent increase in the unemployment rate means a deluge of people seeking your help. Earlier this week, the state announced the number of new unemployment claims made in 2001. They totaled 311, 938, compared with 207,638 in 2000. A 1 percent increase in the unemployment rate over 12 months made compensation claims increase by 50 percent.
State employment data czar Jay Mousa pointed out Tuesday that Minnesota continues to lose jobs at a faster rate that the United States as a whole. This is driven in part by the presence of Northwest and Sun Country Airlines. But on the whole, it is better to be in Minnesota where the unemployment rate is at 4 percent and the proportion of workers lacking jobs is still well below the national average of 5.8 percent.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.