Minnesota ranks 8th for loss of people from the labor force

These were some of the headlines in Minnesota’s media last week:

Kare 11: Minnesota’s unemployment rate is lower than it was before the pandemic

Pioneer Press: Minnesota unemployment drops to lowest level since 2019

WCCO: Minnesota Unemployment Rate Drops To Pre-Pandemic Levels

Fox 9: State unemployment rate tracks down to 3.1 percent, lowest level since pre-pandemic

KNSI: MN Unemployment Rate Lowest Since 2019

This all sounds rather lovely: the unemployment rate is down, isn’t that great? Well, other headlines hinted that there was more to the story:

Minneapolis/St. Paul Business Journal: Minnesota unemployment drops to lowest level since 2019, labor force level stuck

Star Tribune: Minnesota lost 2,000 jobs in December, but unemployment rate fell to 3.1%

So what is the story here?

It is true that Minnesota’s unemployment rate was down to 3.1 percent in December. It is also true that this was the same as in December 2019, shortly before the COVID-19 pandemic hit.

But, as I have often noted, the unemployment rate can be a somewhat misleading statistic. It is calculated by dividing the number of those Minnesotans who are unemployed and looking for work by the total number of those Minnesotans who are employed plus those who are unemployed and looking for work, also known as the labor force. The equation below illustrates this:

(1) Unemployment rate = Minnesotans unemployed but looking for work / (Minnesotans employed + Minnesotans unemployed but looking for work)

So, in December 2021, data from the Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics (LAUS) show that there were 93,906 Minnesotans unemployed and looking for work and 2,936,537 employed. So, our equation is:

(2) 3.1 percent = 93,906 / (2,936,537 + 93,906)

But not all Minnesotans fit into one of these two categories. What about those who are unemployed and not looking for work? They do not count towards the unemployment rate and that is why it is a somewhat misleading statistic. If unemployed Minnesotans stop looking for work, then the unemployment rate can fall without a single new job being created. Even worse, if enough Minnesotans leave the labor force, then the unemployment rate can decline even while the total number of people employed also declines.

This is what has happened in Minnesota. In December 2019, when the unemployment rate was last at 3.1 percent, there were, according to the Department of Employment and Economic Development (DEED), 2,993,518 people employed in the state. In December 2021, that number was 2,884,427, a decline of 109,091 jobs, or 3.6 percent.

DEED actually gives the pre-pandemic peak of Nonfarm employment in Minnesota as October 2019; our state was losing jobs before COVID-19 struck. For the United States as a whole, the peak of Non-Ag employment came in February 2020. Turning back to the LAUS, we see that Minnesota is actually one of 22 jurisdictions where the total number of people unemployed was lower in December 2021 — by 9.2 percent — than in February 2020. It was one of 39 jurisdictions where total the total number of people employed was lower in December 2021 — by 2.6 percent — than in February 2020. And it was one of 49 jurisdictions where the total number of people not in the labor force was higher in December 2021 than in February 2020. But Minnesota’s increase in the number of people not in the labor force — 9.2 percent — ranked it 8th in the United States.

Look again at those headlines at the top of this post. None of them are technically incorrect, but they do give a misleadingly rosy picture of the recovery of Minnesota’s labor market. Yes, the total number of people unemployed and the share of the labor force unemployed have fallen to pre-pandemic levels. But this is not because of a vigorous recovery in employment, which has actually fallen. It is only because Minnesotans have been exiting the labor force at a rate greater than in all but seven other states. For a true picture, look past the headlines.