What is going on in Minnesota’s labor market?
These were some of the headlines last week following the release of data from the Bureau of Labor Statistics. What was behind them?
The Labor Force Participation rate vs the unemployment rate
The BLS divides Minnesota’s population up into those in the labor force and those who are not. Those Minnesotans who are either employed or unemployed but looking for work are deemed to be in the labor force. The percentage share of these people of Minnesota’s population gives you the state’s Labor Force Participation rate. In February 2019, Minnesota’s Civilian non-institutional population was 4,419,239 of whom 3,086,185 were in the labor force, according to the BLS. This gives a Labor Force Participation rate of 69.8%, the second highest in the country. This was down from 70.0% in February 2018.
Of the 3,086,185 Minnesotans in the labor force last month, the BLS estimates that 95,514 of them were unemployed. As a share of the labor force, this was 3.1%. This gives you the unemployment rate. It was unchanged from February 2018 but up from 2.9% in December 2018.
The unemployment rate is probably the most commonly cited labor market statistic. In February 2019, it ranged from 2.4% in Iowa to 6.5% in Alaska. But the Labor Force Participation rate – which ranged from 54.3% in West Virginia to 70.% in the District of Columbia in February 2019 – might be a better measure of how well a state’s labor is being utilized. After all, people who stop looking for work are just as unemployed as those who are not working but are looking, but, while they negatively impact the Labor Force Participation rate, they do not count towards the unemployment rate.
How these numbers can change
These rates rely on three numbers; 1) the state’s population, 2) its labor force, and 3) the number of its labor force unemployed. Dividing 2 by 1 gives you the Labor Force Participation rate and dividing 3 by 2 gives you the unemployment rate. It follows that changes in these rates depend on changes in these three numbers.
In the last year, Minnesota’s population has grown by 0.9%, ranking it 17th nationally. But its labor force has grown by slightly less, 0.7%, ranking 29th nationally. Population (1) growth has outpaced labor force (2) growth and this has lowered Minnesota’s Labor Force Participation rate.
Between February 2018 and February 2019, the number of those in Minnesota who were unemployed but looking for work increased by 1.0%, ranking 10th nationally. As this was greater than the increase in the labor force, unemployment rose.
The British prime minister Benjamin Disraeli is supposed to have said: “There are three kinds of lies: lies, damned lies, and statistics.” This is often unfair. But we have to bear in mind exactly what the numbers we hear are measuring. When we hear headlines like this last week, we have to think a little about what lies behind them before jumping to conclusions.
John Phelan is an economist at the Center of the American Experiment.