The unemployment rate is one of the most popular, but overrated statistics for measuring the performance of the economy. It is such a crude measurement of economic performance that the state’s labor economist was recently quoted in the media as saying that it shouldn’t be taken at face value.
The calculation of the unemployment rate is simple. The number of unemployed workers is added to the number of employed workers (wage and salary, sole proprietors, and others) and that equals the size of the labor force. The unemployment rate is simply the number of unemployed workers divided by the size of the labor force.
In other words, the size of the labor force is a key component in determining the accuracy of the unemployment rate. This brings us to the topic of this post – the size of the labor force.
Local Area Unemployment Statistics (LAUS) are available for Colorado beginning in 1976. Since then, month-over-prior month labor force increased about 87% of the time (383 of 442 months). In a vibrant economy, periodic ups and downs are expected, but increases in the size of the labor force are generally the rule of the thumb.
There are two periods when the size of the labor force did not increase, during the 1980s and the late 2000s. The following analysis looks a period during the 1980s.
Between September 1984 through April 1989 the size of the labor force declined in 29 of 53 months.
In August 1984 the size of the labor force, as measured by LAUS data, was 1,719,239. It declined sharply in 1985, bounced back for most of 1986, and fell sharply in 1987. It remained flat for much of 1988 and into the first part of 1989. In June of 1989, the labor force was reported at 1,719,824. From that point, it continued to grow.
Next, we will look at three data sets for the period: Wage and Salary job growth, Net migration, and the unemployment rate.
During this period, Wage and Salary (CES) job growth was weak, with net job losses in 1987. The net change in wage and salary jobs follows:
• 1984 75,100
• 1985 16,400
• 1986 -10,400
• 1987 4,300
• 1988 23,500
• 1989 46,200
• 1990 38,600
The CES and LAUS series are different measures of employment, but they should tell a similar story about changes in employment.
During this period the state experienced negative net migration, i.e. more people moved out of the state than into the state. The net migration follows:
• 1984 2,782
• 1985 5,172
• 1986 -5,270
• 1987 -13,997
• 1988 -24,280
• 1989 -18,752
• 1990 -12,964
For this period the unemployment rate varied from 5.4% to 7.5%. It remained at a higher than normal level because unemployed workers were able to move outside the region and find work. The annual unemployment rates for this period were:
• 1984 5.4%
• 1985 6.0%
• 1986 7.5%
• 1987 7.5%
• 1988 6.4%
• 1989 5.6%
• 1990 5.1%
The labor force was stagnant for about five years for the following reasons:
• There was a regional recession
• Weak wage and salary job growth
• Negative net migration.
A similar stagnancy in the size of the labor force occurred during the 2000s. It is more difficult to understand and will be discussed in a later post (click here).
©Copyright 2011 by CBER.