September saw an unexpected and dramatic drop in the national unemployment rate from 8.1% to 7.8%. The Cleveland area jobless rate followed suit, falling from 6.9% to 6.5% in September, the most recent month for which the government has data. At first glance this is wonderful news and consistent with the relative over-performance Cleveland has shown throughout the Great Recession and the weak recovery.
However a more detailed look at the numbers shows a more complicated story. While the unemployment rate fell from 6.9% in August to 6.5% in September, the size of the workforce in the greater Cleveland area also fell by 4,100 compared to August. The jobless rate fell, but so did the total number of people either working or looking for work.
This is possible because the jobless rate measures the number of people looking for work against the total number of people in the workforce, working or not. While a decrease in the number of people with jobs will normally increase the jobless rate, the opposite happened this month because even more people simply fell out of the workforce altogether. In September, there were 3,800 fewer people who were unemployed – looking for work and not finding it. However there were 4,100 fewer people in the workforce altogether. That’s 4,100 people no longer working nor looking for work.
To simplify, if you have 10 people looking for work out of 100 total workers, you have an unemployment rate of 10%. If 1 unemployed person gives up trying to get a job, you then have 9 people looking for work, 99 total workers, and a drop in the unemployment rate to 9.1%. But in such a case things didn’t really get better. There aren’t more people working.
Discourged Or Not?
In the best case scenario, many people simply retired and left job openings for the unemployed to eagerly gobble up. Such a drastic drop makes that unlikely. In a worst case scenario, many of the unemployed became discouraged and simply gave up looking for work. Looking across Ohio, nearly every major city saw a similar dynamic in their jobs numbers. So while it is possible that many workers gave up looking for work across the state at the same time, a more likely explanation is that the Bureau of Labor Statistics changed the way they classified workers as unemployed or out of the workforce. In any scenario, its likely the unemployment rate looks better because some previously unemployed people are no longer being taken into account, not because they found jobs.
Is The Economy Doing Well Or Not?
Perhaps the best single measure one can judge a local economy on is the total number of employed people. The more people who are working, the more people there are that can buy houses, go to restaurants and pay their taxes. No city can truly grow without increasing the number of jobs its citizens have. From that standpoint the Cleveland area is doing well. In spite of the recent dip, Cleveland had 13,100 more jobs in September of 2012 then it did a year ago. So it looks as if we’re on the right track.