States and Structural Unemployment

by Karl Smith, Modeled Behavior

Editor’s Note: Some references for readers who need background on the concept of structural unemployment would include Wikipedia, Paul Krugman and Gary Becker/Robert Posner.

One reason to think that this recession is not structural, at least in the way that some people have argued, is to look at state-by-state performance. That way you pick up not only the big industry effects but the multiplier effects from that industry.

Here is private sector employment in Michigan over the last 20 years or so:

Note: Click on any graph for larger image.

The thing to note is that what happened to Michigan happened in the late 1990s and has been trending ever since. If anything, this recovery is a reversal of that. This is important because Michigan is an obvious manufacturing and “old” economy state.

You could actually make an argument that some of the structural problem is that the economy was realigning so that people were moving from Michigan to Nevada and then whoops Michigan recovered and so now who wants to live in Nevada.  Thus Nevada is stuck in rut monetary policy can’t fix.  However I think that is not the strongest of stories.

Ohio shows a similar pattern:

As does Indiana, though less pronounced:

Contrast the above to the Sun States


or Nevada:

or Arizona:

Yet, can you really tell me with a straight face that millions of Baby Boomers are set to retire and so I should expect a structural drop in the demand for labor in Florida, Arizona and Nevada?

Now obviously these states had big housing booms and I have had people tell me there are too many homes in Nevada.  Maybe, but here is non-wage personal income growth in Nevada:

That’s income from Social Security, dividends, rent, small business ownership etc.

The hump is likely from construction contractors who are often small businesses, but the underlying trend is straight up.  Income is still pouring into Nevada from other states at roughly the same rate.

Tourism is down for sure and that hurts, but the retirees, by this measure, look like they are doing all right.