If only we could derive our economic health by looking solely at the unemployment rate. This simplistic view certainly has its perks – namely our economy would be easier to understand – unfortunately, without knowing the unemployment rate can decline for adverse reasons one can be misled into thinking some unhealthy economies are healthy.
The Unemployment Rate = (Number of Unemployed Persons)/(Labor force) – that is, if a state has 5 unemployed individuals and 100 people in the labor force the unemployment rate is 5%.
Mathematically the unemployment rate can decline three ways:
- The Number of Unemployed Persons declines while the Labor Force is unchanged or increases (Good)
- The Number of Unemployed Persons remains unchanged or decreases while the Labor Force increases (Good)
- Unemployed declines at least as fast as the Labor Force declines (Probably Bad)
#1 and #2 are good because new jobs were created. #3 is bad because the unemployed person just gave up (or moved to another state). Complicating the matter further, depending on which time frame is chosen; one can see all three instances. In order to determine if jobs were created we need look at the change in the number of employed.
According to the Bureau of Labor Statistics from September 2012 to October 2012 the number of employed persons increased from 1,396,552 to 1,400,956 in Kansas. This means the unemployment rate dropped because jobs were created not because workers dropped out of the labor force.
Looking back further from October 2011 to October 2012 we see employment is actually down 7,725 jobs – meaning the unemployment rate is lower than 2011 because unemployed individuals dropped out of the labor force.
That means we’re in situation #3 above – not good for the people who either given up looking for work or given up life in Kansas to seek a job elsewhere. It also is not good for the state as we have fewer people working, investing, living, and paying taxes in The Sunflower State.