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Some Popular Locales Now Facing Gloomier Labor Market

While the national employment numbers give the most up-to-date reading of the employment situation in the nation, they mask a lot of variation in employment conditions at the local labor market level. This variation has increased dramatically during the recent recession.

National Employment Figures

The national employment numbers released on May 7, 2010, reveal that while the unemployment rate increased from 9.7 percent in March to 9.9 percent in April, the employment-to-population ratio increased from 58.6 percent in March to 58.8 percent as well. While the employment-to-population ratio and the unemployment rate usually move in opposite directions, they can both increase if the number of people employed increases but the size of the labor force increases at a faster rate.

MSA Unemployment Rate

Simply looking at the national average of the unemployment rate masks the fact that there is a large amount of variation in unemployment rates at the Metropolitan Statistical Area (MSA) level. MSAs are the typical geographical entity that defines a local labor market. As of March (the most recently available month of data at the MSA level), the unemployment rates in MSAs with at least one million people (hereafter referred to as large MSAs) ranged from a low of 6.1 percent in the Oklahoma City MSA to a high of 15.5 percent in the Detroit-Warren-Livonia MSA. A sample of other MSAs—those with the highest and lowest unemployment rates in March of 2010, those with the largest populations as of the 2000 Census, and two in the fourth Federal Reserve District—gives an idea of the variation since January 2006.

The variation in unemployment rates across MSAs increased markedly beginning around January 2009. This increase is reflected in the entire set of 46 large MSAs. While the mean unemployment rate of that set of MSAs changed from 4.6 percent to 10.0 percent from March 2006 to March 2010, the standard deviation also increased from 0.9 percent to 2.2 percent during that time period. In all large MSAs, the unemployment rate increased from March 2006 to March 2010. Remarkably, the largest increase (10.2 percent in Riverside-San Bernardino-Ontario) was almost an order of magnitude larger than the smallest increase (1.3 percent in New Orleans- Metairie-Kenner). MSAs in the Fourth District (Pittsburgh, Cleveland, Columbus, and Cincinnati) saw below-average increases in the unemployment rate during this period. Thus despite having higher-than-average unemployment rates before the most recent recession, Fourth District MSAs with populations greater than one million currently have unemployment rates that are average or slightly below-average.

MSA Labor Force Index

While this may sound like a relative improvement for the region, it is important to consider whether the improvement in Fourth District MSAs unemployment rates relative to other MSAs was achieved through a relative decrease in the number of unemployed people or a relative decrease in the size of the labor force. In fact, the size of the labor force in the Cincinnati, Columbus, and Pittsburgh MSAs grew slightly from January 2006 to March 2010. The size of the labor force in the Cleveland MSA fell, but only slightly. The main reason why the unemployment rate of Fourth District MSAs improved relative to other MSAs over this period is that the number of unemployed people grew at a slower rate in Fourth District MSAs than in many other MSAs.

Across MSAs, the relative contribution of each of these factors to the unemployment rate has varied quite a bit. On one extreme is the Riverside-San Bernardino-Ontario MSA, where the labor force grew by about 15 percent from January 2006 to March 2010. Almost all of this growth occurred between January 2006 and mid-2008. Around mid-2008 the unemployment rate began rising quickly in the MSA, implying that the number of unemployed people began rising. The other extreme case is the Detroit-Warren-Livonia MSA, where the labor force shrank by about 2.5 percent from January 2006 to March 2010. Thus some fraction of the increase in the unemployment rate in the Detroit-Warren-Livonia MSA came from the fall in the size of the labor force. The Cleveland-Elyria-Mentor MSA also saw a declining labor force from January 2006 to March 2010, but only by about 1 percent. Finally, the other MSAs in our sample all saw about a 2 percent to 4 percent increase in the size of their labor force over this period.

MSA Number Unemployed Index

Meanwhile, the number of unemployed people tripled in the Riverside-San Bernardino-Ontario MSA from January 2006 through March 2010 and grew by about 2.5 times in the Los Angeles-Long Beach-Santa Ana MSA. In the Chicago-Naperville-Joliet, Detroit-Warren-Livonia, and New York-Northern New Jersey-Long Island MSAs, the number of unemployed roughly doubled from January 2006 to March 2010. However, in the Fourth District MSAs of Cleveland-Elyria-Mentor and Pittsburgh the number of unemployed grew by about 75 percent over this period.

One possible explanation for patterns observed above is that warmer-climate MSAs that experienced large housing booms may have attracted population during the boom and are now saddled with much greater unemployment in the wake of the bust. However, MSAs in the Fourth District, where house-price increases were more modest, have moved from being relatively high-unemployment-rate MSAs to being average-unemployment-rate MSAs in the wake of the recession, due to slower relative growth of the number of unemployed people in these MSAs. Of course, this is only good news for Fourth District MSAs relative to other MSAs, as the national unemployment rate has just about doubled from 4.7 percent to 9.9 percent during this period. Being an average MSA in March 2010 means having substantially higher unemployment than being a high-unemployment MSA in January 2006.

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