Economic statistics can be confusing, I know: I’ve been dealing with them as a professional economist for almost 40 years. While some say you can prove anything with statistics, I say, no, you just have to know how to interpret the statistics correctly.
I raise this issue because there are two statistical facts that have been creating confusion about the state economy. One is the recent increase in the state’s unemployment rate. The other is the continuing increase in people having jobs in the state. How can these two trends be happening at the same time?
After peaking at more than 11 percent in early 2010, North Carolina’s jobless rate steadily fell for the next five years, hitting 5.3 percent in early 2015. But then the progress suddenly stopped, with the rate rising to 5.9 percent by late summer.
Even more perplexing and concerning was that, at the same time, the national jobless rate continued to fall. Indeed, in early 2015 the national unemployment rate was higher than North Carolina’s rate, but by the fall the national rate was more than half a percentage point lower than our state rate!
Yet, over the months in 2015 that North Carolina’s unemployment rate was rising, more than 40,000 people reporting getting jobs. That’s right, both the jobless rate and the number of employed individuals were going up at the same time.
Indeed, in the past year North Carolina has been adding jobs at a faster rate than the nation. From October 2014 to October 2015, the number of employed individuals in North Carolina rose 2.8 percent, more than twice as fast as the 1.3 percent increase in employed individuals in the national economy.
These conflicting statistics are enough to make anyone’s head swim. Did the statisticians make mistakes? Were there misprints in the reports? Or are we to just throw up our hands and say all this doesn’t make sense?
Fortunately, the answers to all of the above are “no.” There is a logical answer. The key is understanding how the unemployment statistics are derived.
Numerically, the unemployment rate is calculated as the number of people unemployed divided by the number of people in the labor force. The number of people in the labor force includes those having jobs plus those without jobs who are also actively looking for work.
“Actively” looking for work means going on job interviews, contacting potential employers or sending out job resumes.
Here, then, is the solution to the statistical puzzle of how the number of employed people and the jobless rate can both rise. If the number of employed people increases but the number of people in the labor force increases more, then the unemployment rate will rise.
This is exactly what happened in North Carolina in 2015. While the state’s jobless rate was rising, the number of people in the labor force was jumping 90 percent faster than employment. Mathematically, this resulted in a higher official unemployment rate. In addition, compared to the nation, North Carolina’s labor force increased almost six times faster. So, puzzle solved!
Well, maybe not yet. There’s still the question of why our state’s labor force rose faster than the number of jobs, as well as at a faster rate than for the nation.
There are two main reasons. One is that North Carolina is attracting more people from other states, and, until all of them get jobs, they add to the labor force without adding to the ranks the employed. Traditionally North Carolina has been a magnet for interstate movers (yours-truly is one of those). In 2014, North Carolina’s in-migration rate – which measures the relative size of the number of people moving into a state – was almost 25 percent higher than the average state rate. Usually, the only states that beat North Carolina for interstate movers are Florida, Texas and Arizona.
The second reason is that an improving job market – especially with jobs increasing at a faster rate in the state than in the nation – is causing jobless individuals who had stopped actively looking for work (and therefore aren’t counted as unemployed in the main jobless rate) to begin looking again. They will then be added to the labor force but not to the employed numbers until they get a job.
My last statement may be the big question: Will these folks be able to find work? Studies show those without a job for a long period of time have the toughest time ultimately becoming employed. The reason is these individuals often have obsolete skills – meaning they don’t have the right skills for the types of jobs available.
Given the massive changes in the North Carolina economy in recent decades – including the decline in traditional industries like textiles and furniture, along with the increase in the ability of modern technology and machinery to do what humans once did – skill obsolescence may be our biggest labor market challenge. Maybe we need a separate and understandable unemployment rate measuring it. You decide!
Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences.