Education key for long-term solution to unemployment
‘Rhode Island is doing worse then we would expect.’
Guest Column: Edward Glaeser
The most recent state-level employment figures remind us that this economic recovery, like the recession that preceded it, is astonishingly uneven across the United States.
The unemployment rate remains more than 11 percent in Nevada and Rhode Island and less than 4 percent in Nebraska. This heterogeneity poses great challenges to any nationwide stimulus policy, which will inevitably deliver its supposed medicine both to healthy Nebraska and ailing states. A far better path is to focus on helping poor people, not poor places, especially by improving education.
Two-and-a-half years ago, widespread travails made it easy to make the case for national economic interventions. In October 2009, there were only eight states with unemployment rates of less than 7 percent; collectively they made up 4.4 percent of the 50 states’ populations.
In April 2012, a total of 22 states had jobless rates of less than 7 percent. Our economic troubles are not over, but these improvements make it more difficult to build the case for more nationwide action.
Education is a good predictor of which areas continue to have high unemployment rates. In April, the 25 states with the lowest share of high school dropouts among adults older than 25 averaged a jobless rate of 6.3 percent. The 25 states with the highest shares of high-school dropouts averaged 8.2 percent unemployment.
This connection has been true throughout the recession. In October 2009, when the national jobless rate was at its peak, the rate averaged almost 8 percent in the 25 more-educated states and 9.8 percent in the less-educated ones.
The rates in April 2012 reflect variations in the extremity of the recessionary shock more than they reflect differences in the pace of recovery. The seasonally adjusted unemployment rate peaked in October 2009 at 10 percent, and we are now down to 8.1 percent. If patterns stayed constant, we should expect most states to have unemployment rates that equal about 0.81 times their rates in October 2009, and that’s pretty much true.
Rhode Island is doing worse than we would expect, given its October 2009 unemployment rate. Joblessness in Rhode Island has come down slightly, but remains stubbornly high at slightly more than 11 percent.
New York is a conundrum unto itself. The state’s unemployment level remained unchanged at 8.5 percent from March to April 2012, which is not much improved over its 8.8 percent rate in October 2009. The number of unemployed people in the state has fallen by only 40,000 since October 2009. Yet New York has also added more than 311,000 jobs since 2009, which is a reasonable growth rate of 3.6 percent. The combination of rising employment and stable unemployment rates would make sense if the labor force of New York state were growing, but it has also shrunk by more than 62,000 since October 2009.
One way to explain this puzzle is the mismatch between the establishment survey, which examines businesses and gives us jobs numbers, and the population survey, which counts individuals and gives us unemployment numbers. While pure measurement error is always a possibility, it is possible that a lot of New York City companies have expanded by hiring people who live in New Jersey or Connecticut.
It’s hard to begrudge New Jersey the jobs, though, because it is one of the five states, along with North Carolina, California, Rhode Island and Nevada, where unemployment remains more than 9 percent. Of these five, both Nevada and North Carolina have recently experienced sharp declines in their unemployment rates – 1.7 percentage points and 1.2 percentage points, respectively, over the past six months. That’s some good news.
There is less reason for optimism in the troubles of New Jersey and Rhode Island, which have certain similarities. Both states border much larger metropolitan areas and both did reasonably well in the boom years, when New York and Boston soared. But the recession has meant retrenchment and that appears to have hurt the metropolitan periphery more than the urban core, especially in those less-educated satellite cities, such as Newark, N.J., and Providence.
The regional disparities remind us of the remarkably different experience of Americans during and before the economic decline. The better-educated states and citizens have survived the Great Recession; less-educated areas and people continue to face challenges that are unlikely to disappear even if the economy rights itself.
It would also be a mistake to channel aid to particular places, to try to stop the exodus of people moving to areas of opportunity. But we should do more to improve education throughout the country. The best path to prosperity is to attract and train smart people, and then get out of their way. •
Edward Glaeser, an economics professor at Harvard University, is a Bloomberg View columnist.