US Unemployment: An Urban Problem

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US Unemployment: An Urban Problem

After a highly unusual several-month lag, the US Bureau of Labor Statistics has finally updated its state and local labor market statistics, so we will dedicate today’s Data section to these numbers.

The central message here is that US unemployment trends are very location-specific, something the national data obviously fails to capture. By looking at state- and city-level data we can more accurately assess both how far the domestic labor market has recovered and what factors will drive unemployment/labor force participation trends from here.

Two points on this topic:

#1: The current difference in unemployment rates across US states are very large (March 2021 data here).

  • 12 states are already back to essentially full employment (2 – 4 percent unemployment): Nebraska, South Dakota, Utah, Vermont, New Hampshire, Idaho, Iowa, Kansas, Alabama, Montana, Wisconsin and Indiana.
  • 19 states have unemployment between 4 – 6 percent (note: March national joblessness was 6.0 percent): Minnesota, Missouri, Oklahoma, Arkansas, North Dakota, Georgia, Florida, Ohio, Maine, Kentucky, Tennessee, Michigan, South Carolina, Virginia, North Carolina, Wyoming, Washington, West Virginia and Oregon.
  • 8 states have unemployment rates between 6.1 and 7.0 percent, or close to the national level: Maryland, Mississippi, Colorado, Delaware, Alaska, Arizona, Massachusetts and Texas.

That leaves 11 states with noticeably higher unemployment rates (over 7 percent), and several are in the most populous areas of the country:

  • California (12 pct of US population): 8.3 percent unemployment
  • New York (6 pct): 8.5 percent unemployment
  • Illinois (4 pct): 7.1 percent unemployment
  • Pennsylvania (4 pct): 7.3 percent unemployment
  • New Jersey (3 pct): 7.7 percent unemployment
  • Smaller states with +7 percent unemployment: Rhode Island, Louisiana, Nevada, Connecticut, New Mexico, and Hawaii.

Takeaway: US unemployment is clustered in a handful of states (CA, NY, IL, PA, and NJ), with much of the rest of the country already approaching, near, or at full employment.

#2: American big city joblessness is a large part of the country’s overall unemployment challenge, as these 2 points show:

First, consider February/March’s national unemployment rates as compared to America’s 10 largest cities in the same months:

  • March 2021 national unemployment: 6.0 percent
  • February 2021 national unemployment: 6.2 percent

Versus:

  • New York City unemployment Rate: 11.2 pct (March)
  • Los Angeles: 10.9 pct (March)
  • Chicago: 7.7 pct (March)
  • Houston: 8.4 pct (Feb data, latest available)
  • Phoenix: 6.7 pct (Feb data)
  • Philadelphia: 11.2 pct (Feb data)
  • San Antonio: 6.8 pct (Feb data)
  • San Diego: 6.9 pct (March)
  • Dallas: 6.9 pct (Feb data)
  • Austin: 5.6 pct (Feb data)

What this shows: average top-10 big American city unemployment (Feb/March 2021) is 8.2 percent, much higher than the national 6.0 – 6.2 percent rate.

Second, let’s zoom in on New York and Los Angeles and see how their unemployment situations both differ from and inform the US experience as a whole:

  • First, keep in mind that the US labor force (people employed or looking for work) shrank from February 2020 to March 2021 by 3.8 million people (down 2.3 percent). This highlights the problem of declining labor force participation that Fed Chair Powell regularly mentions.

    NYC has not seen the same drop in workforce size. The labor force here has declined by only 9,186 people (-0.2 percent).

    Los Angeles is much more in line with the national decline in labor force size, down 115,124 from February 2020 (-2.2 percent)
  • Add up unemployment in New York City (462,131) and Los Angeles (551,124) and you get 1,013,255 jobless workers, or 10 percent of the US total. These 2 cities only make up 3.7 percent of the US population.

Takeaway: the Pandemic Recession hit large American cities harder than the rest of the country due to their leverage to in-person commercial activities like business travel/tourism as well as the shift to work-from-home. It will be some time before they fully recover.

Final thought: every recession hits regional/local economies differently, but the current dichotomies are exceptional. Even now, the pandemic uniquely challenges urban areas while more suburban/rural regions are in much, much better shape. Monetary and fiscal policy do not, of course, differentiate between New York City or Los Angeles and the 31 states where unemployment is markedly lower than those cities. American policymakers make decisions based on national data, and fair enough – it is one country. But if one is predisposed to worrying about inflationary pressures as a result of over-stimulation, the data we’ve presented today is certainly one way to justify those concerns.