Thursday, May 28, 2015

By Derek Thomas

On the face of it, April brought some great news for job growth in Indiana. The state's unemployment rate declined significantly - down 0.4% from March to April. The current 5.4% rate is the lowest it's been in Indiana since June 2008. Trade, Transportation and Utilities employment made up the bulk of the month-to-month growth (6,400 of the 11,600 jobs added) and the state's workforce is nearing an all-time high. 

All that glitters, however, is not gold. 

First, economists are typically cautious about relying on a single month-to-month changes, as these numbers can be volatile and are subject to revisions. Instead, a three-month change is usually a better indicator.

Second, it's also important to look at the Labor Force Participation Ratio (LFPR)—the ratio of the civilian labor force to the total non-institutionalized civilian population 16 years and older—as a useful tool in determining the overall health of the labor market. A low LFPR means there is slack in the labor market, which puts downward pressure on wages, and holds back growth in household incomes.

With that said, here is some context to yesterday's news:

From February to April, Indiana saw a .5% decline in the unemployment rate, from 5.9% to 5.4%. That's the 5th largest decline in the nation in that time period. 

Yet, during that same time period, 18,800 Hoosiers dropped out of the labor force (more than the 16,600 jobs added from February to April). As a percent of the labor force, that's the second largest exodus from the labor market in the U.S. during that time period - just behind Wisconsin. This means that the unemployment rate decline can be explained - in part - by the number of Hoosiers leaving the labor force. Workers are only counted in the unemployment rate if they are actively seeking work. If someone finds no success in the job market, gives up the job search, and leaves the labor force, the unemployment rate goes down - but not for good reasons.

That brings us to the third and final point, which helps to illustrate declining LFPR; while the state is reaching employment levels (total nonfarm employment) not seen since the summer of 2000, the population of adults in Indiana (16+) has grown by more than a half-million during that time period. In other words, Indiana has added jobs, but not nearly enough to keep up with population growth.

Worse yet, the jobs that the state is adding are low-paying jobs. A recent report from the Indy Star - Economic Gaps Growing Among Hoosiers - encapsulates the conundrum that is the state's insistence on low road growth strategies: "As the state economy grows and state leaders say pro-business policies have created more than 57,000 new jobs last year alone, poverty is on the rise. That's right. More jobs, yet more poverty."

Following a decade of low-road growth strategies, there's good reason to be skeptical of the outcomes. One month's questionable improvement in the unemployment rate is no reason to pop the champagne. To raise the standard of living for hundreds of thousands of Hoosiers, Indiana lawmakers should give sincere consideration to policies that create good jobs, meaningfully increase economic security, and expand opportunity.


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