So Much Job Growth: Why is the Unemployment Rate Still High?

When we released the latest employment numbers last week, we took notice of an interesting trend: the largest single-month growth in jobs in a long time alongside just a modest drop in the unemployment rate between April and May. Yet Pierce County’s unemployment rate remains persistently higher than the rest of the state and nation. What’s going on?

In May of last year, we saw similar job growth—3,500 jobs added in a one-month period in Pierce County. But the labor force hardly grew at all—just an increase of 406. This provided a hint into why the unemployment rate stayed stuck where it was in April: the labor force wasn’t growing enough to fill the 2,800 jobs created that month (April).

Would we see the same problem in June 2017, we wondered? The June unemployment rate dropped a mere one percent, but the labor force jumped up by 2,673. This trend continued until the unemployment rate bottomed out at 4.7 percent in October. By December, it had lept back up to 5.4 percent in spite of job growth in all but one month of the prior ten. 

 

Why aren’t we seeing the unemployment rate plummet amid impressive job growth?

Part of the answer lies beyond our county borders. Pierce County is but one piece of the Greater Seattle Metropolitan area, and our unemployment rate is influenced by factors in King, Snohomish, Kitsap and Thurston counties. But for our reports, economic numbers (job growth, unemployment) are strictly bound by county borders. Put simply, it’s an incomplete snapshot: a new job here isn’t necessarily filled by a Pierce County resident.

Another part of the answer lies in how we define “labor force.” The unemployment rate only reflects people known by the BLS to be actively looking for work. That means if you are a student, a family caretaker, retired or if you’ve given up on the job search altogether, you aren’t counted in the unemployment rate.

However, if labor conditions changed—wage increases, or as is likely the case this time of year, construction season picks up—many people who are not currently part of the labor force may suddenly decide to start looking for work again. Similarly, when a student graduates straight into a newly-created position, there is no impact on the number of people counted as being “unemployed,” but the labor force grows as a result.

There is a third factor involved too: people move from other places to fill jobs here. Whether moving from another county or another state, these newcomers increase our labor force and stave off what could otherwise be a growth-constricting labor shortage.

Labor shortage? You read that right. The second takeaway from May’s employment numbers is that the unemployment rate is essentially unchanged from a year ago in Pierce County and Washington as a whole (down 0.1 percent, each). Meantime, the US unemployment rate is down a whopping 0.7 percent.

 

 How is Washington missing out on the growth that seems to have happened nationally over the past year?

Short answer: we aren’t. In fact, Washington is probably a driving force behind the low unemployment rate at the national level as other regions’ unemployed workers are migrating here to find work.

We may be seeing a skills gap between Washington’s unemployed workers and the jobs that are created here. Our economy is going strong, but we are relying on labor force growth rather than tapping deeply into the pool of workers seeking jobs.

At some point, Washington might not so easily be able to import its labor force or call workers back into jobs who haven’t been looking for work. As a result, growth could stall not because the economy is weak but because we have run out of skilled talent. Finding ways to “skill up” our unemployed neighbors is a solution to a problem we may soon face—if we aren’t feeling it already.

 

June’s employment numbers are expected to publish the final week in July.