The U.S. labor market has improved considerably since the depths of the recession in 2009. However, traditional measures of the labor market may not always tell the full story. Despite the recovery, for example, government efforts to strengthen the job market have remained in place. Last week, the Federal Reserve Board announced it would continue keeping interest rates near zero, citing improving, but still weak, labor underutilization.
The traditional unemployment rate does not include all jobless individuals, nor is it a percentage of all the people available for work. It is a measure of jobless working-age Americans actively seeking work as a percentage of the labor force, which is defined as the total number of employed and unemployed workers. To account for people left out of the calculation, the Bureau of Labor Statistics (BLS) provides alternative measures of labor underutilization.
The underemployment rate, also known as U-6, includes the standard unemployed population as well as marginally attached workers and persons employed part-time for economic reasons. Marginally attached workers are neither employed nor looking for work, but those who have indicated their desire for employment. Discouraged workers, a subset of the marginally employed, believe there are no jobs available to them and have given up looking as a result. Finally, the underemployment rate accounts for involuntarily part-time employed workers who could only find part-time work but would like a full-time job.
Martin Kohli, chief regional economist at the BLS, explained there are many reasons jobless individuals might give up looking for work. They might be retired, disabled, full-time students, home-makers, or parents who would like a job but have struggled to find adequate child care.
Based on the underemployment rate, 24/7 Wall St. reviewed the 10 states where finding full-time work is most difficult. Nevada had the highest underemployment rate in the nation at 15.2%. By contrast, North Dakota’s underemployment rate of 5.5% was the lowest in the country. Over the 12 months through the second quarter of this year, the U.S. underemployment rate was 11.3%, down slightly from 12.9% over the previous period.
While the underemployment rate captures significantly more people than the standard unemployment figure, it is not surprising that states with high rates of one measure almost always have high rates of the other measure as well. Eight of the 10 states with the highest underemployment rates were in the top 15 for unemployment as well. The correlation is not 100%, however. Oregon and Michigan had the fifth and ninth highest underemployment rates but each had the 20th highest unemployment rates.
Gross domestic product (GDP) also provides a picture of the weak economic climate in many of these states. In eight of the 10 states with the highest underemployment, GDP has either contracted or grown slower than the national growth rate over the past eight years. In Nevada, the state with the highest underemployment rate, GDP contracted by 11.7% between 2007 and 2014 — by far the worst decline over that period.
Weak economic climates often manifest in labor force contractions. This may be because poor job markets are discouraging people from looking for jobs in these states. While the U.S. labor force rose by 1.8% from 2007 through 2014, the labor force shrank by more than 5% in high-underemployment states Mississippi and Michigan.
Many of these states were also among the hardest-hit during the housing crisis. Nationwide, average home prices were 5.5% lower last year than they were in 2007. In seven of the 10 states, home prices fell faster than the national decline over that period. In Nevada, California, and Arizona, the drop was significantly larger — home prices in each of the three states fell by more than 15%. Kohli said, “if your house is underwater you’re less likely to sell your house and move, so you’re not going to have the labor market adjusting to high unemployment the way you would if people could sell their houses.”
To determine the states where it is hardest to find full-time work, 24/7 Wall St. examined average underemployment rates for the 12 months through the second quarter of this year measured by the BLS. We also considered annual U-3, the conventional measure of unemployment, and annual U-6, the underemployment rate, in each year from 2007 through 2014. Also from the BLS, we reviewed average weekly wages and the size of the labor force from 2007 through 2014. Socioeconomic indicators including poverty rates and educational attainment rates came from the U.S. Census Bureau’s 2013 American Community Survey (ACS). From the Federal Housing Finance Agency (FHFA), we considered the annual purchase-only housing price index. Real GDP figures are from the Bureau of Economic Analysis (BEA).
These are the states where it is hardest to find full-time work.