What Do Those Unemployment Numbers Really Mean?
Every leader in Louisiana is rooting for this economy. Everyone wants to see more jobs come into the state and fewer of our fellow citizens unemployed.
But, we have to start by telling the truth about our current situation. Governor John Bel Edwards recently made news touting dropping unemployment numbers, making the case that job growth is on the rise in the state.
While that’s technically true (more on that below), a fuller look at the state’s employment numbers paint a somewhat darker picture, with fewer jobs than just a couple years ago.
Celebrating The Wrong Things
By praising the unemployment rate dip, the Governor is celebrating that thousands have given up looking for work in Louisiana. Under that logic the best policy solution would be to bus unemployed Louisianans across the state border or put them on welfare and and tell them to stop looking for a job.
The state’s unemployment rate is the number of unemployed divided by the total workforce (put simply, everyone with a job plus everyone actively looking for a job). So decreasing the unemployment rate can happen one of two ways. 1) creating jobs and hiring unemployed people, which is what we want. Or 2) by men and women giving up on looking for a job.
The sad fact of our state’s jobs situation is that nearly 13,000 people have dropped out of the workforce since the beginning of the year. So, while the unemployment rate has dropped by more than a percentage point, a significant chunk of this drop is due not to new jobs created, but rather to those leaving the workforce altogether.
If we go back to January of 2016, the numbers are even more striking. Since January of 2016, nearly 54,000 people have dropped out of the active labor force.
What about the number of people who have work? Well, as you can see on the below chart, that’s gone down, as well, with nearly 22,000 fewer people employed since January 2016.
So, then, what does that mean for the unemployment rate? When you reduce the number of people in the active workforce, even when the number of jobs drops, well, you still get a drop in your unemployment rate! Presto! So that number dropped from 6.2% to 4.8% in the last 22 months.
In fact, if the same number of people were in the labor force today as there were in January of 2016, the unemployment rate would be 7.2% instead of 4.8%.
Interestingly, the high water mark of number of people employed since 2007 was January of 2015, when 2.039 million Louisianans had a job. That also coincided with one of the highest unemployment rates (6.8%) in that same stretch of time, since nearly 2.2 million people were in the active labor force.
What Does All This Mean?
Be skeptical of what you hear on the news. (Duh!)
The number to watch, the next time you hear a politician brag about creating jobs, is how many people in Louisiana have a job. We want that number to go up, up, up. And, we can likely expect as more jobs are available in Louisiana, more people will start looking for work again, so that unemployment rate itself may fluctuate as everything starts to even out again.
What can government do help encourage this result? Well, put simply, two broad things:
- Enact policies that make it easier to start a business, grow a business, or find a job, (like repealing occupational licensing requirements, simplifying our state’s complex and antiquated budget process, reducing regulatory red tape, etc); and
- Repeal those policies that foster reliance on government support rather than encouraging private sector growth (for example, our state’s recent expansion of Medicaid to able-bodied adults, among others).
Of course, the Pelican Institute will have more to say about all of these policy areas in the coming months, as we make our case for a 21st Century Jobs and Opportunity Agenda for Louisiana. Stay tuned…