The Amazing Shrinking Labor Force

About a week ago, Econompic posted some nice charts about recent shrinkage in the labor force. As they noted, without labor force shrinkage, the unemployment situation would look a lot more dire, rising above 10% for the nation as a whole.

In the period between March and August of this year, 837,200 persons left the labor force. This has had the ironic effect of driving down the unemployment rate in many states. Basically, unemployment is still up, but not up as much as it would be if people hadn't exited the labor force. The "economic recovery" at hand is thus largely a function of people who have lost all hope and stopped even looking for work.

This phenomenon has not been equally distributed across the country. This is to say that while some states have seen virtually no change in their labor force others have seen their labor forces shrink considerably. I've created a graphic to show this, which I've posted below.

As you can see, there are several states that have seen significant shrinkage in their labor forces. Shrinkage in Indiana, 82,900 (2.6%), and Mississippi, 38,500 (2.9%) has been large. In absolute terms, California has seen an impressive drop, 213,500 (1.1%).

All this has significant implications for unemployment. Remember that these numbers represent people who have at one point either had a job, or were looking for one, and have given up. If we hold the labor force steady from March of this year and count those who have exited the labor force among the unemployed, the rate in many states skyrockets.

It's really surprising to see the states that are affected by this. Below is a table which lists the percentage by which the unemployment rate in each state would rise if the labor force were held constant at March levels.

Table 1. Holding Constant for 03/09 Labor Force.

ND 39.5%
MS 27.4%
IN 23.2%
NE 22.0%
CO 20.6%
AL 19.2%
UT 15.0%
OR 13.1%
PA 12.8%

If we look again at Indiana, it's clear that the shrinkage in the labor force creates a misleading impression of the unemployment situation there. The official (U-3) unemployment rate for the state is 9.9%, however holding the labor force constant, the rate rises to 12.2% which is more in line with surrounding states. The swath of states from Michigan on down through Indiana and Tennessee into Alabama and Mississippi where the auto industry was centered has been nailed. The economy is so bad that people have given up any hope of finding a job, and that's showing up as an improvement in unemployment numbers. It's not real.

As to what's driving the massive labor force drop in Massachusetts, I honestly have no idea. Maybe a reader can explain that.


Massachusetts mystery solved. I made a data entry error. I entered the number for employment for the labor force, meaning that I am the source of this mystery. Correcting this data entry error, Massachusetts looks like the rest of the Northeast (except for RI). The labor force is up slightly from 3,421,800 in March to 3,444,500 in September. That's an increase of 22,700 (0.7%) This also means that the if we hold the March labor force constant, that Massachusetts 8.5% instead of 9%. I've updated the maps and charts accordingly. I think it might be time for me to get new glasses. My prescription must have changed over the last 7 years.



good post on important reminders

I think most people do not get that the labor force is a subset of the total population and does "shrink" when people drop out of it, as well as "expands" when there is underground workforce in competition.

People see 10% or whatever and think that's some static #, which is based on some sort of static U.S. total pop....
when it's not, there is a whole series of criteria who is counted in the workforce and that skews the numbers.

They count foreign guest workers in the employment rate yet as far as I know do not count them in the total U.S. work force, which deflates the real unemployment rate for U.S. workers. Where this is prevalent is in tech jobs.

Now about that shrinkage


"..837,200 persons left the labor force.."

Not an unexpected number, given that a tremendous number of laid-off people are now taking early Social Security retirement benefits, given the inability to find work in this incredibly shrinking labor market.

That's cool.

I wonder if the Social Security Administration keeps data at the state level, and makes it available online.

Astounding numbers for MA

I live in MA and I can only offer anecdotal evidence which backs up this figure, but keep in mind this figure is never discussed in local media as being this large: huge spike in food pantry use was headlined within the last 10 days as well as the fact that pantry supplies are dangerously low for the high demand; a local freshman state rep told me and about 8 others gathered for a political event back in March that his office hears daily from different constituents about to lose their homes - just utter despair; my sister-in-law works in public education and our local high school saw 26 high schoolers transfer into the public high school from private high schools in JANUARY....they could not even finish out the year at the private school - all due to tuition costs and being unable to pay the new semester. It disrupted the public school budget - keep in mind this number is one town, but it is repeating all around in surrounding communities - the school department had never seen an influx of students that large all at one time. This story is repeating itself all over the state. Private schools are hurting. UMASS, the state subsidized state university, has a freshman class with the highest GPA and highest SAT scores in it's history and if anyone thinks the economy had nothing to do with that fact they are naive. The Governor just announced that a budget shortfall could necessitate the laying off of 2000 state employees,in addition to up to 9 unpaid furlough days for some others within gov't, possibly massive cuts in local aid which will translate into further cuts locally no doubt; possible sale of state owned property......if anyone doesn't think that the stimulus bill should have been bigger .....just ask state and local government officials.

As for why these numbers are so high in MA? One possible reason - large number of coastal communities/suburbs of Boston are home to a large number of financial service employees and they took a big hit around here. Everyone knows someone who lost a job in financials or who does not work on State St or in the financial district anymore. Huge Mcmansions had replaced 'teardowns', no doubt with jumbo mortgages, and they are now sporting for sale signs. Realtors are crying. Lawn services could be seen and manuevered around on certain streets and neighborhoods they are a rare sight.

We, as a state, do not have a spending problem....we have a revenue problem. Yet all the public officials can talk about are cuts. Cuts in turn lead to more severe consequences.

And the downward spiral continues and people wonder why?

I wonder why supposedly smart people do not know or understand Keynesian economics.


Today's headline in St. Pete Times: Unemployment hits 11%. This is for the state, of course, and is all the more noteworthy when you consider the age structure -- if memory serves, the 65 and over category is about 18% statewide, and in the Tampa Bay area well over 20%. The unemployment rate in the Tampa Bay area was cited at 11.7% -- and that's only the official rate. Wells Fargo Securities analyst was quoted in the article as saying the nationwide rate would peak at 10.5% and Florida at 11.5%. Both Mort Zuckerman and Pat Buchanan have opined that the real current rate should be more like 17% if you include discouraged workers and underemployed. Even Larry Kudlow is getting worried. I have been in the Chauncey Gardiner camp for a while now, and am willing to look for green shoots if I can find any. This year's tourist season will be telling for the state.
Frank T.

Frank T.

I discovered the problem

I made an entry error.

I entered the employment for the labor force. So in short, I messed up Massachusetts.

edits and revisions r us!

You can edit, revise and even change the title of a post and it won't mess up the site. All for those "oopsy's" which I have done also!

I did.

I thought that it was important to acknowledge the correction, instead of disappearing it.

Transparency matters. And when entering thousands of data points to create datasets, it's inevitable that this will happen from time to time.

I wish I could get software that did double entry verification. However, that would take a lot more time.....

Why current unemployment numbers

Scary numbers manfrommiddletown. As to why, I think it is almost obvious. The economic policies instituted by our political leaders caused the problem as documented at
(see page 3 for a succinct example). Basically few politicians consider the long term effects of their actions.

Grandpa Oddball

Grandpa Oddball

foreclosure track in a small town

Every day a foreclosure pops up in my neighborhood. Every color of the rainbow is represented on signs posted by different real estate agencies. I feel like I'm in a tragic Monopoly game where everyone needs a get-out-of-jail-free card. Upside down runs North and South in the World's 7th largest economy.