It is perhaps the best known of all of Mark Twain’s quotes – “There are lies, damned lies, and statistics.” It would be hard to find a better illustration of that line than the misuse of unemployment statistics in Twain’s home state of Missouri.
After peaking at 9.6 percent in July of 2009, Missouri’s unemployment rate fell three full percentage points—to 6.6 percent—at the end of 2012. That compares to a 1.7 percentage point decrease in the national unemployment rate.
To hear Missouri Gov. Jay Nixon talk, you might think that Missouri’s economy is booming. “Missouri families and businesses are reaping the benefits as our economy continues to grow,” Nixon said in early June, citing 44 consecutive months in which the state’s unemployment rate has been at or below the national average. “In every corner of our state, businesses large and small are deciding to invest and expand.” Though Missouri’s unemployment has ticked back to 6.8 percent, it remains below the national average of 7.6 percent.
But Missouri is not blazing a path for other states to follow. To the contrary, it ranks near the bottom of all states in job creation. In this regard, the Show-Me State serves as a textbook example of the fallacy of thinking that a large drop in the unemployment rate must be synonymous with a corresponding increase in business activity and employment.
From 2010 through 2012, total employment in Missouri grew a trifling 1.8 percent, compared to 4.1 percent for the nation as a whole. Thus, Missouri considerably underperformed the rest of the nation in job growth—even as it seemingly excelled in dealing with the scourge of high unemployment.
You will not find any stories in Missouri newspapers trumpeting the state’s economic performance. Whatever the governor might say, most Missourians are well aware of the state’s inability to keep pace with its neighbors in business and job creation. In the past three calendar years, Missouri ranked dead last among Midwestern states (counting Missouri and the neighboring states of Kansas, Nebraska, Iowa, Illinois, Tennessee, Kentucky, Arkansas, and Oklahoma) in growth of both employment and GDP.
So why the disconnect between the good numbers on unemployment and the bad numbers on GDP growth and employment? The answer lies in a far-from-vibrant workforce. This goes beyond the fact (and it is a fact) that job growth in Missouri has failed to keep pace with population growth. Over the past three years, tens of thousands of Missourians have quietly exited the labor market. And that has had the effect of lowering the state’s unemployment rate.
In the Bureau of Labor Statistics way of calculating unemployment, able-bodied people without jobs are not counted as unemployed if they have stopped looking for work. What the BLS calls the “labor force” is the sum of total employment and total unemployment, and people who are eligible for employment but do not seek it are neither fish nor fowl—neither employed, nor unemployed.
From July 2009 to April 2013, the number of unemployed people in Missouri fell by 96,000. But the number of employed people rose by only 26,000—which means that some 70,000 people (the difference between the two numbers) dropped off the grid—in neither working nor actively seeking work.
Who are these dropouts? I can easily think of a dozen of them in my own circle of friends and family members. They include non-working sons and daughters of affluent parents who have discovered they, too, qualify for food stamps and other forms of welfare, extended by the government or their own parents. They include doctors, lawyers, and other business or professional people who have retired or quit working earlier than they might otherwise have done—as a result of the combination of unhappiness at their former jobs and seeing no possibility of finding other, better employment.
In the previously mentioned time period, the labor force participation rate in Missouri (the labor force divided by the labor-eligible population) fell from 66.6 percent to 64.0 percent—a drop of 2.6 percentage points. That compares with a 2.2 percentage point drop in the participation rate nationally over the same time.
The disappearance of 2.6 percent of the workforce is no small thing. Without it, Missouri’s unemployment rate, instead of falling three points, would have increased 0.7 points to 10.3 percent.