What’s not surprising about the Unemployment Rate

IN doing some research for my piece on the weaknesses masked by Maine’s unemployment rate (UER), I noticed two interesting things about the UER.  These two things should be kept in mind during the current campaign season.

The state’s economy is certainly one of the central issues in the campaign season, and with that candidates will toss around statistics.  One of those stats is the UER.  As noted last week, the UER can be misleading–at least, it is not as complete a measure of an economy’s/labor market’s health as some might suggest.  On top of that, both parties make note of trends about the state’s UER relative to the nation’s.

The Republicans note that the state’s UER is, and has been throughout the recovery, lower than the nation’s.  This obviously is to suggest that Governor LePage is steering the Maine economy in the right direction.  Conversely, Democrats note that the gap between those two rates is closing.  This, again obviously, is to suggest that Governor LePage is steering the Maine economy into an iceberg.

Both are notes about the UER made by the two parties are true.  Maine’s UER is lower than the nation’s, though that gap is shrinking.  However, even with the aforementioned caveats about the UER as single indicator of economic and labor market health, there’s nothing enlightening about what either party is noting.

Specifically, looking back over the past three major pre-2008 business cycles (the recessions of the early 1980s, early 1990s, and early 2000s), we see that, with the exception of the 1990s recession, Maine has weathered those economic downturns better than the nation–at least in terms of the UER:

In general, job growth in Maine–both in terms of losses and gains–has been for the most part less volatile than the nation’s, particularly over the past decade and a half:

What this suggests is that Maine’s economy and labor market are somewhat insulated from the economic shocks that hit the national economy.  Why?  Differences in industries are arguably the biggest reasons why.  During the most recent recession, goods producing sectors hemorrhaged jobs at a much higher clip than service providing sectors.  Maine has a smaller percentage of its workforce working in goods producing industries than the nation, which might have helped to somewhat insulate the state’s labor market.  Moreover, the 2008 recession hammered the housing industry, and caused the greatest employment losses in those states with economies tied to the housing market (such as Florida, Nevada, California, etc.), whereas states not as tied to that sector were less effected.  The bursting of the housing bubble had big negative impact on construction jobs, which hit the national economy harder than Maine’s:

Obviously there were other industries negatively impacted by the recession, but the above helps illustrate how the impact of economic downturns impact the same industries in different states differently, and offers some insight as to possible reasons why Maine’s labor market better weathered the recession.

In short, it’s not that surprising that Maine’s labor market (again, in terms of the UER) is outperforming the nation’s.  But what about that shrinking gap?

Again, historical trends suggest this shouldn’t surprise anyone, or necessarily lead one to believe the state’s economy is tanking.  The following graph simply illustrates the gap between the UER for Maine and the nation:

With the exception of the 1990s, the nation’s recession high UER was at least 1.5 percentage points higher than Maine’s (which still peaked following the 1990s recession, but it did so during the recovery and at a lower rate).  In all four cases, either in the run up to the recession or in the immediate aftermath, the nation’s UER would increase at a higher rate than the state’s.

During the recoveries, the national UER would then decline at a faster rate than the state’s.  With the exception of the 1980s recession* (where we still saw a decline in the gap between the nation and Maine), the UER gap would return roughly to pre-recession levels.

While recessions and their causes vary, both party’s points about the nation-state UER gap should not be given much weight without a more nuanced explanation as to why the current phenomena differs from past trends.

* It’s interesting that the UER gap stagnated during the late 1980s and was not due to a rise in the national UER, but an accelerated decline in the state’s.  The obvious question is why.

While not at the same level as the UER gap of the 1980s, the current UER gap has persisted much longer than it did in the 1990s and early 2000s. 

John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.