Set in the proper context, unemployment rates can effectively be used as a metric for measuring the health of an economy. But to get a clear picture, several underlying factors must first be taken into consideration.
We’ve touched on various reasons for Texas’ rising unemployment rates before. Massive job creation – Texas added 253,000 jobs in the past year alone – has not been able to keep up with an even larger population explosion. But one interesting component of unemployment rates that goes largely unnoticed is the effect of a fluctuating labor force.
To be included in the labor force, an unemployed individual must have looked for work sometime in the past four weeks; if that individual gives up searching for work for more than four weeks, they simply fall through the cracks and are no longer considered unemployed.
The U.S. labor force has been shrinking in recent years due to the number of unemployed people who have ceased looking for work. From January 2009 through April 2011, the American labor force shrunk by 750,000 people. Conversely, during that time Texas took in thousands of migrants who continued looking for work, which added 461,000 people to the state work force and therefor added to the state’s unemployment numbers.
The US unemployment rate has dropped one half percent in the past year, but the source of that decline can be traced to a shrinking work force rather than actual job growth. According to the Texanomics blog, “in Texas, the employment growth has been strong, but the unemployment rate masks that because there is actually a growing labor force.” So if work force sizes both nationally and at the state level had remained the same over the past two years, the US unemployment rate would be close to 9.7 percent while the unemployment rate in Texas would likely be down near 5.5 percent.
The fluctuation of the US labor force, which has seen unprecedented volatility since the beginning of the recession, can be one of the largest contributing factors to unemployment rates. A growing labor force is typically considered a good thing, but it can also create a negative employment picture. Combined, the growth of Texas’ labor force and the state’s rapid job creation represent a prosperous economy, despite what the unemployment rate might say.
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