Rate is likely more than half a percentage point higher than
reported.
Georgia’s unemployment rate fell to 6.0 % in July, the
lowest since May 2008, according to seasonally adjusted data provided by the
Bureau of Labor Statistics.
Unfortunately, the drop reflects people leaving the labor
force in June and July rather than increase in employment.
Looking at the not seasonally adjusted data, last year Georgia’s
labor force grew by 34,057 in June and July. This year, the state’s labor force
actually dropped by 5,159 over the same two months. Given the state’s natural population
growth rate, this seems unlikely to be due to demographic factors.
The formula used for seasonal adjustment expects a larger
labor force in the summer from high school and college graduates as well young
workers who are out of school for the summer. When that does not occur, it can
throw off the unemployment rate.
With the non-seasonally adjusted data taking an unexpected
dive, the formula resulted in a seasonally adjusted drop of nearly 30,000
people. It is as if everyone that had joined the labor force from Jan. 1 to
July suddenly dropped out.
If the 30,000 people in June and July had not dropped out of
the labor force but been added to the unemployed list instead, the seasonally
adjusted rate would have stood at 6.6 % in July.
Why the decline in
the labor force?
Explanations for the change in labor force between summers
of 2014 and 205 include (1) people are leaving the state in record numbers
[highly unlikely], (2) it is a statistical fluke that will be reversed in
future months [somewhat likely], or (3) people not working this summer did not
search for work [somewhat likely].
It is possible that over the summer, an abnormally large
number of older individuals chose to retire [also highly unlikely].
More likely, younger workers who normally find summer jobs either
were unable to work in the summer months or chose not to work.
There is anecdotal information that the lower labor force was
due to a combination of younger workers taking additional education over the
summer months rather than searching for work, as well as a lack of summer jobs
this year. If younger workers knew that summer employment programs were unable
to meet demand, they may have decided to not even try to find jobs.
By dropping out of the labor force rather than looking for
work, the labor force shrinks, the number of officially unemployed persons
falls, and the unemployment rate looks artificially low.
Looking ahead
The seasonal adjustment formula expects fewer workers in the
labor force, as students return to school in August and September. This should
cause the seasonally adjusted unemployment rate to rise in August and September.
(Georgia schools begin classes relatively early in August, so some of the
effect should show in August numbers.)
We shall look forward to see if the state’s unemployment rate
turns higher in August and September that will either validate or invalidate
our theory.
