States' Unemployment Claims

Last week’s  unemployment claims were unchanged from the previous week, although they are still about 5% higher than a year ago. For all practical purposes claims have remained relatively flat over the last year reflecting, no doubt, the reluctance of businesses to lay off workers given the difficulty of finding persons to fill positions. Job openings are still elevated with a total of 9.61 million in August, yet they are 2.4 million fewer than a year ago when openings total was 12.0 million. Relative to the number of persons unemployed, the number of openings translates into 1.5 jobs available per unemployed person.

Despite no change in the number of U.S. claims this past week we find large differences among the fifty states. Changes over the last year in the number of claims at the state level range between a high in Virginia, where claims are 55% above their level early October 2022, to a low in Florida, where claims this year are 55% lower than last year. 

The map to the right provides a geographic overview of changes in claims from last year. The red family of states indicates that claims this year are higher than in 2022; that is the employment situation in those states has worsened. Virginia, shown in gray leads states with highest increase in claims relative to last year. Second highest, in bright red, is New Hampshire with 50% more claims, followed by Hawaii which posts 45% more.

Visual inspection of the map suggests a greater preponderance of states with higher claims in the middle section of the country, as well as the Northwest region. Three states in the latter have higher claims - Montana, 19% higher, Washington, +21%, and Idaho +20%.

Conversely, the green family of states in the map indicates states with fewer claims than in October of 2022. Florida leads with the biggest improvement, as stated above, with claims this year slightly less than half their level last year- 55% below. Other improving states are Massachusetts which is down 42%, Indiana down 29% and Louisiana 17% lower. Note that improving states are generally among both coasts.

An alternative way to analyze the relative performance of states is to compare each state's number of claims to its total employment. That is, take the ratio of claims to employment and multiply by 1000, to convert the number into an easier to understand metric.  

We find that at the national level with last week's 209,000 claims, against the 156.9 million persons employed, there are roughly 1.33 claims for every thousand persons employed. A lower ratio mean the state's employment performance is better, and conversely.

The map displays the latest ratio for all 50 states; the states in the family of reds post the relatively worst performance. States colored in the family of green indicate better performance. 

The ratio ranges from a low of 0.33 in Virginia and 0.34 in South Dakota, to a high of 2.44 in Hawaii and 2.43 in Alaska. The median of all 50 states happens to be 1.0 and the average ratio is 1.22.

In the map, the two states in white, Wyoming and Nevada, have a ratio the same as the nation or roughly 1.33 claims per thousand workers employed.

 Although one may be tempted to conclude that this metric captures the political divide between "blue" and "red" states, we can't conclude this without deeper analysis of the data. Yes, twelve of the thirteen states with higher than average ratio (red family) are all typically classified as leaning Democratic. At the same time, several states in the green family can be classified also as leaning Democratic. E.g., Virginia, Massachusetts, Rhode Island on the Northeast, or New Mexico and Colorado in the West.  

RISING EMPLOYMENT BUT FLAT INCOMES, WHY?

The last two months' employment reports have been hailed in some quarters as a sign that the economic recovery is finally on. At the same time consumers' income continues to be stubbornly flat, if not declining. What is going on? Shouldn't more working people lead to higher incomes? We hear about the 10.7 million jobs created since the end of the recession (somehow attributed to the magnanimous hand of the government) but little is said of the fact that most of those "new" jobs are simply a catch-up to the employment losses suffered during the 2008-09 recession. In fact, only 3.3 million of those job gains truly represent new jobs, that is jobs over and above the number of people employed in January 2008 right when the recession hit. In this note we will review some explanations of this apparent disconnect between job and income growth.

Employment Growth Data Are Misleading
Currently, national employment is only 2.4% above the pre-recession peak of 138.4 million employed in January 2008. This growth translates to a dismal rate of only 0.8% per year, far below the 2.3% annual growth rate maintained between 1940 and 2007. Also since the end of the recession, U.S. population has increased by 5.9%- that means that employment growth is not even keeping up with population growth.  The chart nearby compares the average annual employment growth over the six years from the 2008-09 recession, to similar 6-year periods after each of the recessions since 1960. It can be seen clearly that the current recovery, as well as the post-2001 recession one, are far below par.

Many States Continue to Fall Behind
Underlying the slow pace of employment growth are several states that still have to regain the losses suffered during the 2008-09 recession. We find that 15 states still show a gap to the pre-recession employment peak. These 15 sates represent nearly one quarter of total U.S. employment, accounting for 34 million jobs. Leading the pack is Nevada that first enjoyed tremendous growth during the housing bubble years, only to see its economy collapse when the housing market crashed. The state had the highest rate of foreclosure filings in the nation in 2010, with an astounding 9% of all housing units in the state in foreclosure- that is, one out of 11 houses.
Second in line is Michigan, still reeling from both the housing crisis and the collapse of its auto industry, with two of its three automakers being forced to take advantage of the Obama's stimulus plan. Other states in similar straits are listed in the chart.

More New Jobs in Lowest Earning Sectors

A key reason for low income growth, and lackluster GDP growth, lies in the fact that the largest employment gains are in sectors that generate the lowest earnings. Nearly two-thirds of the new jobs created since the beginning of the recovery, six years ago, are in the four lowest paid sectors. The sharp path in job growth for these four sectors is shown in the chart nearby.
Yes, the number of workers in these sectors has been increasing rapidly, but little mention is made of the fact that these same sectors and jobs are among the lowest paid.



A simple graph showing average weekly earnings by sector against the relative contribution of each sector to total employment growth provides a clearer view. On the chart to the left, we can see that the sectors with the highest contributions to growth, highlighted in read, are also the ones that generate the lowest earnings.
The sector with the lowest weekly earnings, Leisure & Hospitality, contributed nearly one-fifth (19%) of the job growth since the end of the recession- that is 2.0 million jobs. But the average weekly compensation of these workers does not break the $400 mark. Similarly, Waste Services generated about one in seven jobs each barely making above $600 a week.
Other sectors with high growth but low earnings are Retail Trade, 10% of jobs at an average of $548 a week; and Health Services, with slightly over 19% of the new jobs although paying slightly over $800 a week. All in all, these four sectors generated 6.97 million jobs since June 2009, or 65% of the total 10.7 million jobs gained over that time.

Such Growth Does Not Lead to Prosperity
It is not only jobs, but high earning jobs that lead to prosperity. Although I do not explore here the reasons behind the fast growth of these low paying sectors, it seems that impediments set governments via regulations are stymying robust growth in some sectors that happen to generate higher earnings. Without making a judgement on the value of such regulations, we can readily see for instance that high-paying sectors such as mining or manufacturing have traditionally attracted heavy government regulations. Employment in coal mining has fallen from 90 thousand in 2012 to about 70 thousand today- efforts to move away from coal are having an impact, and the average earnings from coal mining are over $1,500 a week. Despite restrictions on off-shore oil exploration and limits on oil exports, the oil industry has moved in the opposite direction to coal's. Thanks to fracking, oil exploration employment has increased from 124 thousand in 2004 to nearly 200 thousand today; this industry generates weekly earnings of nearly $1,800.

EMPLOYMENT IN APRIL...RECOVERY OR MORE STAGNATION?

The latest employment report from the Bureau of Labor Statistics brought forth mildly positive news about the state of the U.S. economy, following the disastrous First Quarter results. GDP in the first quarter, as we all know, was barely positive at 0.2%- the statistical margin of error is probably greater than 0.2%! The overall economy remains in a nearly dormant state, with occasional bursts signaling a recovery only to fall back into European-like economic stagnation. Moreover, employment grew an average of 184 thousand new jobs a month in the first quarter, far below the 260 thousand average posted throughout last year.


Thus, the 223 new jobs added in April are an improvement over the first quarter gains, and a particularly welcome one compared to March's measly gain of 84 thousand new jobs. Employment rose in most major economic sectors, with notable exception being Mining & Logging, where employment fell by 15.0 thousand workers. Lower oil prices, as expected, are causing an employment retrenchment in the oil extraction industry. This could be solved if the U.S. Congress fully lifted the ban on oil exports, which will take partial effect in August of this year. Also modest employment declines were observed in Wholesale Trade (-4.5 thousand) and Arts, Entertainment and Recreation (down 2.2 thousand).
On the positive side, large gains were observed in Professional & Business Services, that accounted for over a quarter of the gain with 62 thousand new jobs. Health Care & Social Services, an area whose employment we expect to increase further over the next few years as a result of government subsidies through Obamacare and the demands of aging population, rose by 55.6 thousand workers- also a quarter of April's gain.

Most Gains From Part Time Employment

But it should be noted that virtually all the new jobs created in April were part-time jobs; the number of part-time workers rose by 206 thousand in April, or 92% of the 223 thousand new jobs. The number of persons employed in part-time jobs has remained relatively unchanged since the official end of the 2008 recession, ranging between 26 and 27 million persons.
In fact, as the chart "Part Time Employment" shows, the sharp jump of 3-4 million in the number of part-time workers seen during the recession has not disappeared. It seems like a new plateau in part-time employment has been reached.The transition from part-time to full-time employment has not materialized for most people, assuming that's what many people expect when they get part-time employment.

Mixed Signals From Hours Worked Data

Another statistic that provides a glimpse into the current economic situation is the number of hours that workers put in a week. However, these data do not provide a clear signal. Overall, the number of hours worked in the private sector remained unchanged at 34. 5 a week. But there are sharp differences among the various sectors. The chart "No. of Weekly Hours- Change March to April 2015" identifies those sectors that are either rising or stable, colored in green or yellow, and those that had a decline in the hours worked, shown in red.
What this chart does not show is the fact that for several "goods producing" sectors (e.g., manufacturing, mining, construction), the number of hours worked has been declining for several months. This may help explain partially the country's economic stagnation.

Thus, from the headline numbers one is led to believe that there is a recovery underway. But digging deeper into the data shows still many weaknesses in employment. And, despite the emphasis that many people put in whether GDP is growing or not, the key driver of a robust economy is "solid" employment growth.