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.
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.