Governor's economist goes to battle over drop in labor force participation
Gov. Rick Scott's chief economist Rebecca Rust was recruited today to provide some political cover to the governor amid new reports that suggest that a major reason why Florida's unemployment rate has dropped is because of people dropping out of the labor force.
In an unprecedented memo released Thursday afternoon, the normally-clinical Rust referred to recent unnamed economic studies. "It remains unclear why some economic analysis would rather highlight the negative factors of the economy when there are numerous indicators reflecting the improving statewide job market over the last two and half years," she wrote.
We're not sure what reports Rust is referring to here, but we are among several news organizations that have written about the distinction between the drop in the labor participation rate and the drop in the state's unemployment numbers over the last two years.
The distinction was made again on Wednesday, when the state House and Senate appropriations staff and the legislature's Economic and Demographic Research jointly released the State of Florida Long-Range Financial Outlook and observed a "conundrum." Despite an unemployment rate that is below the national average, Florida "is still 515,100 jobs below its peak during the boom," the report concluded, and that "simple rehiring, while necessary, will not be sufficient to trigger a robust recovery." "If job creation has been relatively stable, why has Florida seen a marked decline in its unemployment rate? The answer lies in the labor force participation rate,'' the report concludes on page 31. "The reported unemployment rate has dropped from 9.4 percent to 7.1 percent from December 2011 to July 2013, a change of 2.3 percentage points. If the participation rate had held steady since December 2011 when the labor force peaked, the unemployment rate would have been 8.2 percent. This indicates that 47.8 percent of the drop in the unemployment rate is due to people dropping out of the labor force or delaying entrance."
But the economists weren't all negative, as Rust suggested in her memo. They also noted: "Even so, this metric has shown improvement from last year when the percentage was significantly higher."
Rust emphasized that that data used by her department, the Bureau of Labor Market Statistics, is from the U.S. Department of Labor which uses "standardized statistical methods." Her analysis of the unemployment numbers is as "accurate as possible given the constraints and federal budgetary limitations of survey-based estimates," she said.
She also noted there are reasons for people dropping out of the workforce and "this level of detail on the alternate reasons is not available in the monthly statistics" used to crunch the employment data.
"With Florida’s popularity amongst retirees and the aging baby-boomer population, retirement is certainly an important factor that contributes to a decline in the labor force, in addition to those leaving the labor force to continue education,'' she wrote.
Still, despite that lack of data, Rust speculates with this conclusion: "the size of Florida’s labor force is up over the year, so the decrease in the unemployment rate is more likely attributable to people finding jobs."
Here is her memo:
DATE: September 5, 2013
The Florida Department of Economic Opportunity’s (DEO) Bureau of Labor Market Statistics has an agreement with the U.S. Department of Labor, Bureau of Labor Statistics (BLS) to produce, analyze, and deliver labor statistics to improve economic decisionmaking. The data used by DEO economists are collected under federal/state cooperative statistical programs and are comparable nationwide for all counties and metro areas. These programs have been in operation since the late 1940s and provide a picture of the state’s economic climate and recovery. The data programs use standardized statistical methods and are sample–based representing the universe of employers and labor market participants. They are as accurate as possible given the constraints and federal budgetary limitations of survey-based estimates.
Products from DEO Bureau of Labor Market Statistics cannot be swayed by an agency’s or an individual’s desired outcome. The U.S. Bureau of Labor Statistics is the source of the data and they control the estimates. State staff have no ability to adjust the statistics. It remains unclear why some economic analysis would rather highlight the negative factors of the economy when there are numerous indicators reflecting the improving statewide job market over the last two and half years.
It has specifically been noted that Florida’s unemployment rate has been decreasing primarily due to individuals leaving the labor force because they cannot obtain employment. Although it is true that the labor force decline contributes to the decrease in the unemployment rate, there are many alternative factors causing this decline. This level of detail on the alternate reasons is not available in the monthly statistics. The labor force participation rate in both Florida and the nation as a whole has been slowly declining since 2007, and there are a variety of factors that can contribute to that decline. With Florida’s popularity amongst retirees and the aging baby-boomer population, retirement is certainly an important factor that contributes to a decline in the labor force, in addition to those leaving the labor force to continue education.
In addition, the size of Florida’s labor force is up over the year, so the decrease in the unemployment rate is more likely attributable to people finding jobs.
The monthly household survey that collects data on labor force participation does not have a large enough sample size to provide detailed information on the exact reasons people leave the labor force. It is also not known whether such individuals were previously employed or previously unemployed before leaving the labor force. Certainly, as the baby-boom generation is retiring, there are many naturally leaving the labor force who were employed prior to their exit.
Florida created 34,500 private sector jobs in July 2013 and a total of 369,100 new private sector jobs since December 2010. Also since December 2010, Florida’s statewide unemployment rate has dropped four percentage points, from a rate of 11.1 percent to July’s rate of 7.1 percent. In the same timeframe, the national unemployment rate has dropped 1.9 percentage points, demonstrating Florida’s improving economic climate continues to outpace the national recovery.
The monthly employment and labor force estimates are derived from procedures mandated by USDOL BLS. The estimates are based on two different surveys—a survey of employers that measures the number of nonagricultural jobs by industry by place of work and a survey of households that measures people employed or unemployed by place of residence (not jobs). Because the two surveys conducted by BLS have many definitional and coverage differences, the estimates resulting from them are not directly comparable. This means that we cannot directly correlate the number of private-sector jobs created to the unemployment rate as one measure counts jobs and the other measure counts people.