A Quiet Factor in the Unemployment Rate

Labor force size doesn't get much attention, but it does play a role.

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Last month, 19 of the nation's metro areas had unemployment rates that reached 15 percent or higher. The national average was 9.4 percent. Of those 19 areas, 8 were in California and 5 were in Michigan. Cities with the highest unemployment rates were El Centro, Calif., at 30.2 percent, and Yuma, Ariz., at 26.2 percent. "In addition to being affected by the economic downturn, these two adjacent areas are highly agricultural and experience extreme weather during summer months," the Labor Department reports.

One interesting thing to look at is how labor force growth, or decline, may contribute to the unemployment rates in these cities.

Between July 2008 and July 2009, the total U.S. civilian labor force actually fell by a tiny margin—about 2,000 workers. Labor force participation generally falls in very bad job markets, as people who are not in need of work, or become discouraged, stop looking for it.

In some cities, however, the labor force has jumped. The metro area of Visalia-Porterville, Calif., faces an unemployment rate of 15.3 percent—and the area's workforce has increased by 3.6 percent in the last 12 months. Grand Junction, Colo., has the highest metro area unemployment rate in the state, but it's workforce has grown 3.9 percent, while the size of the labor force has fallen in every other Colorado metro.

When workers drop out of the market, that can help push the unemployment rate lower, because the number of job seekers shrinks. But when the number of participants increases—and the number of jobs dips or stays flat—the unemployment rate can climb.

Even the Yuma, Ariz., labor force grew by 3 percent between July 2008 and July 2009. El Centro's labor force grew by 2.3 percent.

On the other hand, Bismarck, N.D., registered the lowest unemployment rate among metro areas in July, at 3.1 percent. The labor force has shrunk by 2.4 percent over the same period.  (Certainly, many other factors are at work here. Bismarck has also added some jobs since January.)


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