Not a good thing to lead the nation in….

Just in from the Bureau of Labor Statistics…”In 2010, 32 states and the District of Columbia registered statistically significant deterioration in their employment-population ratios—the proportion of the civilian noninstitutional population 16 years of age and over with a job.” Colorado lead the charge. What does this mean in everyday English? Colorado has seen a substantial reduction in the number of employed residents.

Although this is certainly not news, one puzzling part is the relative stability of the unemployment rate. In December 2009 Colorado’s unemployment rate (not seasonally adjusted) was 8.7 percent. 12 months later it was 8.9 percent. Although the rate  is increasing, it’s not as high as we expect given the fact that more the 30,000 fewer residents were employed in December 2010 than 1 year earlier.

The root of this apparent inconsistency lies in how we define the unemployment rate–the number of unemployed divided by the labor force. The labor force, in turn, is the sum of employed and unemployed. In order to be considered unemployed one has to not have a job but be actively looking for one. If someone stops looking for work, they are considered a discouraged worker, and are no longer counted as part of the labor force. If discouraged workers were still considered as part of the labor force, then the unemployment rate would be higher.

How much higher? The above pictured employment-population ratio can give us a sense of its growth. Also useful is looking at changes in the size of the labor force. Over the past 12 months Colorado’s labor force has declined by about 28,000. Meanwhile, the official number of unemployed has increased by only about 2500. Why the difference? Although some of the labor force reductions may have come from people leaving the state, and others have retired, it is safe to say that many people have just given up looking for a job…at least until the economy starts turning around in a meaningful way. (A back of the envelope calculation suggests Colorado’s real unemployment rate is about 10 percent).

The implications are many. First, although the national recovery is underway, Colorado is lagging the nation. Second, meaningful reductions in the state unemployment rate remain somewhat far down the road….when the economy bounces back people will rejoin the labor force, keeping the unemployment rate high. Bottom line….from a policy perspective, employment growth remains front and center.

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