Sunday, July 20, 2014

Employment in Dayton, OH and Greenville, SC

This is my third post comparing the Dayton, OH MSA to the Greenville, SC MSA. So far I have analyzed their many similarities as well as their different population trends. In this post I want to highlight the overall employment trends in each MSA over the last 24 years. Below is a graph showing the unemployment rate in both MSAs since 1990.

As shown in the graph the unemployment rates between the two MSAs are very similar since 1990. This is not too surprising since as I have pointed out the two MSAs are very similar in size and industry makeup, but I still did not expect the rates to be quite so similar. Greenville's rate has remained a tick under Dayton's but the cycles are nearly identical and there is some overlap in the mid 2000's. Both saw a spike in unemployment in the early 2000's after 9/11 and of course during the great recession that started in 2008. The unemployment rate in each MSA has been falling since 2009, though Dayton's has leveled off at around 8% while Greenville's has fallen to just above 6% and appears to be heading lower.

In order to understand the underlying causes of the unemployment rates in the two MSAs it is important to understand how the unemployment rate is calculated. The unemployment rate is the ratio of the # of people employed divided by the number of people in the workforce. In mathematical terms it is

Unemployment rate = (# of people unemployed / # of people in labor force) x 100% (to get in percentage terms).

The labor force, the denominator, is the sum of both employed and unemployed workers. An unemployed worker is someone not employed who is actively looking for a job. Retired people do not count as unemployed since they are not looking for a job. Other potential workers who are no longer actively seeking employment also do not count as unemployed. These types of people are out of the labor force.

This formula more clearly shows how the unemployment rate could fall. Either the numerator, the number of people unemployed, could get smaller or the denominator, the # of people in the workforce, could get larger relative to the numerator.  To see how this works lets look at a hypothetical example.

Suppose there are 100 people in the labor force and 10 are unemployed. In that case the unemployment rate is 10/100 x 100% = 10%. Now suppose 5 of the unemployed people give up searching for a job; they are now out of the labor force. In this case the numerator decreases from 10 to 5 and the denominator decreases from 100 to 95. The unemployment rate is now 5/95 x 100% = 5.3%. So the unemployment rate fell from 10% to 5.3% but no one got a job. Rather some of the unemployed workers simply quit looking for a job. So the unemployment rate can fall even if unemployed workers do not get a job.

This is important. It is good when the unemployment rate falls because unemployed workers who want jobs find one. It is not so good when the unemployment rate falls because workers who want jobs simply grow tired of looking and exit the labor force. So which of these scenarios is occurring in Dayton and Greenville? The graph below shows the size of the labor force in each MSA.

The labor force has been falling in Dayton since around 2002 and has been growing fairly steadily in Greenville since 2002 and most of the prior years. This means that Greenville's unemployment rate has been falling since 2009 despite a labor force that has been slightly growing while Dayton's rate has been falling along with the size of their labor force. This is evidence that the Dayton unemployment rate is not falling because more people are getting jobs but rather because workers are getting discouraged and are giving up looking for jobs. A look at the total employment in each MSA, shown in the graph below, confirms that this is the case.

The total number of people employed in the Dayton MSA has been primarily decreasing since 2000. In the Greenville MSA the total number of people employed has been primarily increasing since 2000 except for during the worst part of the recession. Dayton still has a larger labor force and actual work force than Greenville, but if the current trends continue Greenville should be passing Dayton fairly soon.

Based on the unemployment rate alone it appears that both Dayton and Greeville have done fairly well since the worst part of the recession. However, a closer look at the actual employment numbers shows that Greenville is gaining employed workers while Dayton's decreasing unemployment rate is primarily the result of a shrinking labor force. This is another worrisome sign for the Dayton MSA.

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