Iowa Policy Points

Christine Ralston

Iowa’s latest jobs picture is a bit mixed up. Iowa’s unemployment rate was at 6.6 percent in December, remaining relatively stable through the second half of 2009. But the job numbers themselves dropped dramatically, shedding 13,200 in December alone for the largest one-month drop in more than a decade.

Though this month’s job losses were staggering in their rate of change, the whole year gives a better picture.

Iowa began 2009 with a seasonally adjusted unemployment rate of 4.4 percent, and jumped quickly – to 4.8 percent in the first month, and to 6.2 percent by June and 6.5 percent in July. The rate has stayed at or above that level ever since.

It’s important to understand that the unemployment rate alone doesn’t tell the whole story of those without work.

The unemployment rate:

• does not include those who are working less than full time but would prefer full-time employment.
• does not include those workers who have given up and dropped out of the job search; and
• does not necessarily reflect job trends. In other words, the unemployment rate can go up at the same time we’re adding jobs — or vice-versa.

So what gives? First it helps to know the monthly numbers reflect two surveys that measure different things.

A U.S. Census survey of households determines the unemployment rate. When a person is unemployed he or she must be 1) jobless, 2) looking for a job, and 3) available for work.[1] In other words, not every person without a job is considered unemployed.

People meeting that definition as “unemployed,” along with those who are employed, constitute the labor force. The unemployment rate is the percentage of the labor force that is unemployed.

It’s not perfect: Someone who has lost his/her job and has quit trying to find a job at a given point in time is no longer counted as unemployed, and therefore is not reflected in the unemployment rate. And someone who lost a job with health-care and retirement benefits may now be working independently — at lower pay and without benefits — but is counted as employed. That person is employed, but is really underemployed.

So the unemployment rate does not necessarily measure job quality or the ability of the economy to meet the demand for jobs.

The monthly nonfarm job numbers, on the other hand, come from a payroll survey of employers. It does not count workers; rather, it counts jobs, which is a more transparent way to know what jobs employers are making available.

The nonfarm job number, too, is not perfect. In fact, one person with two jobs is counted twice. And it doesn’t tell whether the jobs are full- or part-time jobs. But it’s a pretty good measure, because it shows changes in the number of jobs the economy is supporting, month to month and year to year.

Rather than focusing too heavily on one-month changes, we can see that during all of 2009, nonfarm payrolls fell by 40,100 jobs, or an average of 3,300 per month. In 2001, the year of the last recession before the 2009 recession, the average job loss was 2,100 a month.

A few key points from the nonfarm jobs numbers, which show changes by sector for the year:

• Nearly half of the net nonfarm job losses for the year were in manufacturing — 19,900.
• We had losses of 7,900 jobs in trade, transportation and utilities; 7,700 in construction; and 4,500 in leisure and hospitality.
• Only three sectors showed a net gain: education and health services, 2,600; professional and business services, 1,200; and financial activities, 900.

The economy leaves Iowa with a lot of room for improvement. Employment is often one of the last areas to show signs of recovery, so it is going to take some time to see big positive changes. It is also a reminder that we need all the numbers to best view the state’s employment picture.

Posted by Christine Ralston, Research Associate