Williston, North Dakota: Boom Town

Employment is growing at a faster rate in Williston, North Dakota than anywhere else in the U.S.  Williston is located in northwest North Dakota, about 70 miles south of the U.S.-Canadian border.  Northwest North Dakota is the center of the Bakken oil boom, which has dwarfed any other energy booms in North Dakota and Montana.  The employment boom in Williston over the past two years is one of the most dramatic since the U.S. Department of Labor began collecting local employment and unemployment data.

Williston is a small city (a micropolitan area according to the Census Bureau) where employment grew modestly from 1990 to 2005 and by 10% per year from 2005 to 2010, despite the global recession.  Growth in Williston really began to take off about two years ago.  The unemployment rate in Williston is 0.7%, or 1/11 of the U.S. unemployment rate.  Over the past two years employment has grown by more than 40% per year which is 26 times faster than in the rest of the U.S. and over 29 times faster than growth in Williston prior to 2005.  To put this into perspective employment in Williston is now increasing by the same number of jobs every four days that used to be created each year from 1990 to 2005.

The following chart shows that employment has doubled in Williston in the past two years.  Between 1990 and 2005 employment grew in Williston at an annual rate of 1.37%.  Over the past two years employment in Williston has grown by 2.86% per month.

There are growing pains associated with the employment boom.  The latest data from the Williston police department indicate that both property crimes and violent crimes have increased substantially in Williston, but roughly in proportion to the increase in employment.  The following charts compare the growth in crimes reported by the Williston Police Department to the growth in employment.

Williston is the quintessential energy boom town.  Employment is growing at an astronomical rate.  Wages are also rising — starting pay for high school graduates now tops $50,000 in the energy boom areas in North Dakota and Montana.  The average weekly wage in North Dakota has risen by 27.1% over the past three years, or 5.2 times faster than in he U.S. overall.  As employment has grown so quickly in such a short time the cost of rental housing has soared and the number of violent and property crimes have increased substantially.  These are just some of the growing pains associated with an economic boom.

Lessons from Elkhart, Indiana

In the 2008 presidential campaign then-candidate Barack Obama visited Elkhart, Indiana twice.  He visited again as president in February 2009 to make the case for his $800 billion stimulus package.  President Obama came to Elkhart three times because the city was in the midst of an economic freefall and seemed to epitomize the plight of the U.S. economy in 2008-2009.  Although Elkhart’s unemployment rate was 4.6% in 2007, by March of 2009 it would reach 20.2%.  Elkhart has bounced back from the recession much better than other cities.  Its unemployment rate is now 8.3%, slightly above the national average but dramatically lower than it was just three and a half years ago.

Indiana is the most manufacturing-intensive state in the U.S. with one of six private sector workers employed in manufacturing.  In addition, over 7 out of 10 manufacturing jobs in Indiana are in the durable goods sector.  Arguably, no city in the U.S. is more dependent on the production of durable goods than Elkhart, which has been called the recreational vehicle capital of the world.  While only 6.7% of private sector jobs in the U.S. are in durable goods manufacturing in Elkhart 43.6% of private sector workers are employed in the manufacture of durable goods, with the majority of those jobs in the production of recreational vehicles and motor vehicle parts.  Elkhart has been one of the top job creating cities in the U.S. since the recession ended.  In the past three years jobs in durable goods manufacturing have increased by 42.7% in Elkhart compared to 5.6% growth in the U.S. overall.

As a durable goods manufacturing center Elkhart’s downturn and recovery looks much more like the typical pattern for a deep recession followed by a brisk recovery.  Other cities hurt most by the recession (such as Riverside, CA and Las Vegas NV) suffered collapses in their residential real estate markets and residential investment.  These cities have not yet experienced the rebound seen in Elkhart.  The following chart indicates how the unemployment rate in Elkhart spiked much above the rates in Las Vegas and Riverside but has fallen more quickly since then.

There has been much discussion about why this recovery has been so slow and so weak.  Reinhart and Rogoff relied on cross-country and historical comparisons to argue that a slow and weak recovery is to be expected after a systemic banking and financial crisis.  It is difficult, however, to make consistent cross-country comparisons of unemployment rate fluctuations because of differences in the way each country measures unemployment.  Bordo and Haubrich limit their analysis to American historical data.  They find that “general recessions associated with financial crises are generally followed by rapid recoveries.”  They also conclude that one reason for the slowness of the recovery “is the moribund nature of residential investment.”

Another way to understand the 2008-2009 downturn and the subsequent recovery is by comparing unemployment rate fluctuations across U.S. cities.  Such a comparison shows that the unemployment rate has remained stubbornly high in cities where the housing bubble burst.  Durable goods manufacturing centers like Elkhart saw a big drop in the demand for the products they produce and a large increase in unemployment during the recession.  But manufacturing-intensive cities have recovered somewhat more rapidly – more typical of previous downturns.  That gives the edge, for the time being, to the explanations provided by Bordo and Haubrich.

70,000 Workers Displaced by Hurricane Sandy in New Jersey: Unemployment Rate May Reach 11%

Hurricane Sandy had a devastating effect on employment in New Jersey and a fairly large impact on employment in New York, as well.  A leading indicator of unemployment is the weekly report of new unemployment insurance claims.  A spike in new jobless claims means that a large number of workers were displaced from their jobs.  New Jobless claims have quadrupled in New Jersey and doubled in New York in the aftermath of Sandy relative to November 2011.  Using these data I estimate that Hurricane Sandy displaced 150,000 workers in the first two weeks after the storm hit, with 70,000 jobs lost in New Jersey and 50,000 lost in New York.  These job losses could push the November unemployment rate above 11% in New Jersey and above 9% in New York.

During the weeks of November 10^th and November 17^th (the most recent weeks for which detailed state data are available) about 96,000 jobless workers in New York filed for first-time unemployment insurance benefits, compared to about 48,000 new claims one year ago.  Similarly, almost 92,000 jobless workers in New Jersey filed for first-time unemployment insurance benefits during the weeks of November 10^th and November 17^th, compared to just over 24,000 new claims one year ago.  In the weeks after Sandy the rate at which workers lost jobs is about four times higher in New Jersey and twice as high in New York compared to November 2011.

The following charts compare the year-to-year change in new unemployment insurance claims the weeks of November 10^th and November 17^th and the corresponding change in claims for the previous 16 weeks (on average).  The charts indicate that new jobless claims remain very high in New Jersey while they have dropped recently in New York but remain above 2011 levels.  In both states new jobless claims in 2012 were consistently below 2011 levels until Hurricane Sandy hit.

Hurricane Sandy caused about 70,000 people to lose their jobs and file for first-time unemployment insurance benefits in New Jersey and 50,000 in New York during the weeks of November 10^th and 17^th.  These job losses are measured relative to the declines that would have been expected had the storm not hit the New Jersey coast.  Using similar methods, I estimate that about 30,000 additional jobs were lost in the rest of the country, possibly due to Hurricane Sandy.

The November jobs report (released on December 7^th) is the first one after the presidential election and the first to include data gathered after Hurricane Sandy.  The storm’s displacement of 150,000 workers in the past two weeks is enough to increase the U.S. unemployment rate from 7.9% to 8.0%.  Hurricane Sandy is also likely to increase the unemployment rate to 11% in New Jersey (from its current 9.7%) and above 9% in New York (from its current 8.7%).  The November unemployment rate is based on worker’s labor force status for the week ending November 17^th.  This means that continued job losses and displacement of workers in the second half of November, especially in New Jersey, will not factor into the November unemployment rate but could possibly cause the unemployment rate to increase further in December.

(Not) Leaving Las Vegas: When Unemployment Happens in Vegas the Jobless Stay in Vegas

Since February 2009 the unemployment rate in Las Vegas has averaged 13.1% and never dropped below 10.1%; it now stands at 11.5%.  Jobless workers have not left the metro area despite the persistently high unemployment rate and lack of job growth since the recession ended.  This stunning lack of out-migration, Las Vegas’ labor force of about 980,000 workers declined by less than 200 people in the past four years, is puzzling because there are better job prospects for the unemployed and underemployed in other parts of the western U.S. 

Every other state has a healthier labor market than Nevada and every major metropolitan area has a lower unemployment rate than Las Vegas.  The unemployment rate in North Dakota is 3.1% and has not been above 4.2% since February 2009.  Unemployment rates in Nebraska, South Dakota, Utah and Wyoming are 3.8%, 4.5%, 5.2% and 5.2% respectively.  The combined labor force in these states is more than 3.5 times larger than Las Vegas, and could easily absorb jobless workers leaving Las Vegas.  The labor forces in these relatively healthy states have grown by an average of less than 1.4% over the past four years.  In other words their labor markets are expanding at a steady but unspectacular rate.

The last four years stand in stark contrast to Las Vegas’ recent history.  Between 2004 and 2008 the Las Vegas labor force grew by 16.8%.  Between 2000 and 2004, a time of relatively slow economic growth for the U.S. overall, its labor force grew by 14.1%.   This means that about one-quarter of the Las Vegas labor force arrived between 2000 and 2008.  These recent arrivals came to a city in the midst of a real estate boom but have persevered through four years of high unemployment and plunging real estate values.

A comparison of Las Vegas and cities on the Gulf and Atlantic coasts that also experienced a real estate boom and bust in the past decade is informative.  Between 2004 and 2008 the labor force grew by 13.4% in Fort Myers-Cape Coral, Florida and by 12.7% in Myrtle Beach, South Carolina.  Since then their labor forces decreased by 1.3% and 4.2% respectively.  If the labor force in Las Vegas contracted at the same rate as it did in Fort Myers or Myrtle Beach, because unemployed workers left the city to find employment elsewhere, the Las Vegas unemployment rate would be 1.3 to 3.9 percentage points lower.

Labor forces have declined in many cities across the U.S., even those that did not experience a real estate boom and bust, but not in Las Vegas.  Much like the gambler who stays at the blackjack table believing his luck will change with the next shoe the people who came to Vegas for economic opportunities are hanging on and hoping that 2013 will be different.

Job Destruction in the Golden State

Perhaps no state has more protective labor laws than California.  Hourly employees in California are required to receive time-and-a-half overtime pay for hours worked over eight but less than twelve in a day and twice their regular hourly rate for hours worked in excess of twelve in a day, even if the employee works fewer than 40 hours in the week.  Employers who fail to properly classify workers into hourly and salaried positions and pay appropriate overtime compensation are subject to potential lawsuits and penalties.  Employers are also required to provide meal breaks to hourly employees for shifts in excess of five hours in length and are subject to lawsuits and penalties if meal breaks are not provided, are provided too late in the shift, or if the breaks are too short in length.  In the past two years most retail chains in California have been sued over failure to provide “suitable seating” to cashiers.  According to California’s Industrial Welfare Commission all employers must provide suitable seating to all employees “when the nature of the work reasonable permits the use of seats.”  The unintended consequences of “labor-friendly” laws are that labor services become more expensive and work is then more likely to be outsourced to states and countries with fewer labor regulations and lower labor costs.

One of the results of strict labor laws and regulations is that California has contributed no new private sector jobs to the U.S. economy in the past decade.  This is a dramatic reversal of a trend that started before the Department of Labor began measuring employment by states and areas.  The California economy grew rapidly from the 1950′s through the 1980′s as private sector employment more than tripled and about seven million private sector jobs were created over a forty-year period.  Employment in California continued to grow, albeit at a slower rate than in the rest of the U.S., in the 1990’s.  In the last decade private sector job creation in California came to a grinding halt.

The following chart illustrates decade-by-decade growth rates in private sector employment in California and the rest of the U.S. since 1952.  Employment in California grew much more rapidly than the rest of the U.S. from 1952 through 1982, and slightly more rapidly than the rest of the U.S. from 1982 to 1992.  The slowdown in employment growth in California began in the 1990′s as job growth in other states outpaced growth in the Golden State for the first time in decades.  Private sector employment actually declined slightly in California from 2002 to 2012.

The record of job creation in California over the past two decades is even more lackluster if one looks more closely at employment by sectors of the economy.  For example, it is more difficult to outsource health care services to other states and countries because most health care professionals must be located near their patients.  In fact, the only parts of the private sector that have contributed to job growth in California over the past ten years have been industries in the health care sector.  As the following chart shows, while employment in hospitals, nursing homes, and outpatient health care providers grew briskly in California over the past ten years, employment in non-health care industries has dropped by 2.7% since 2002.

There are now fewer manufacturing jobs in California than there were in 1957 when the Dodgers were located in Brooklyn, the Giants played at the Polo Grounds, and California had about one-third as many residents as it does today.  There are many reasons why California employment has been growing slower than in the rest of the U.S. for at least two decades.  High marginal tax rates and more stringent environmental regulations are often cited as factors that raise the cost of doing business in California.  “Labor-friendly” laws and regulations have also likely been responsible for increasing labor costs and encouraging the outsourcing of jobs to other states and countries.

What Happened in Vegas? Its Not Better Off Than Four Years Ago

The question “are you better off than four years ago?”, first asked by Ronald Reagan in his campaign against Jimmy Carter in 1980, has a different answer for households in different parts of the country, and for workers who differ with respect to their occupation, age, education, race, gender and work experience.  The average answer to this question belies substantial inequality in changes in economic fortunes over the past four years.  There have been economic success stories even during the depths of the deepest recession since the Great Depression.  Some small businesses and start-ups have flourished.  The stock market and corporate profits have rebounded well in the past four years.  Many individuals have found work, moved from part-time to full-time work, received a promotion, or a substantial increase in their rate of pay.

At the other end of the spectrum, there is unlikely to be a group of workers more adversely affected by the recession and weak recovery than construction workers in areas where the real estate bubble burst.  Consider building construction workers in Las Vegas, Nevada.  Four years ago there were 17,500 workers employed in building construction.  Today there are only 5,100 meaning that employment has fallen by 71% over four years.

The Case-Shiller price index for residential housing in Las Vegas has fallen by 41% over the past four years.  This means that many of the unemployed and underemployed construction workers are underwater in their homes.  Moreover, given the glut of housing, the employment prospects for construction workers in Las Vegas is likely to remain weak for years to come.

What happened in Vegas, unfortunately, isn’t confined to Vegas.  There are a number of other cities and areas, from Riverside County, California to south Florida, that are casualties of the crash in real estate markets.  Many residents of these areas lost equity in their homes.  Others lost their jobs and have been underemployed for years.  Many small businesses, especially those dependent on real estate and construction, have failed.  So whenever pundits and journalists attempt to determine whether the typical American is better off than they were four years ago, remember that there are 300 million different answers to that question.  In some parts of the country the answer is clearly no, for far too many Americans.

Unemployment and Democratic Mayors at the DNC

Last week the Los Angeles Times ran an interesting story highlighting the conflict between the messages delivered by Republican governors in the key swing states of Ohio, Virginia, Wisconsin and the theme of Mitt Romney’s presidential campaign.  Governors Kasich, McDonnell and Walker all spoke at the Republican National Convention and emphasized the economic turnarounds experienced by their states under Republican leadership.  The Los Angeles Times reported that the talk of job creation and falling unemployment rates in these three states “delighted” President Obama’s re-election team.

Last night five Democratic mayors, from Charlotte, Chicago, Los Angeles, Newark and San Antonio spoke at the Democratic National Convention.  Four of these five metropolitan areas have unemployment rates above the national average of 8.3%.  The only metropolitan area of the five with an unemployment rate below the national average is San Antonio with an unemployment rate of 7.3%.  (The Bureau of Labor Statistics reports unemployment by metropolitan area not cities themselves.)

Taken together, these five metropolitan areas have a combined labor force of nearly 14.5 million workers, and 1.43 million of them are unemployed.  This puts the aggregate unemployment rate for the metropolitan areas represented by the Democratic mayors who spoke last night at 9.9%.

It wasn’t always this way.  In 2007 the unemployment rate in all of these metro areas was below 5%.  Fewer than 675,000 workers were unemployed in the combined metro areas in 2007, for an aggregate unemployment rate of 4.7%.

Will the Los Angeles Times recognize the conflict between the President’s re-election campaign message and the plight of the millions of unemployed, underemployed and discouraged workers in cities governed by Democratic mayors?  Perhaps not because only one of the cities (Charlotte) highlighted at yesterday’s DNC is in a swing state. 

Given the electoral map, the Presidential campaign is likely to pass by many people suffering from the steep recession of 2007-2009 and the weak recovery of the past three years.  I suspect that voters in these cities and states are looking for solutions from their mayors, governors and elected representatives, whether they are Democrat or Republican, and are less concerned with assigning blame for our economic woes.

Badgering Wisconsin’s Jobs Data

Next month’s election between Wisconsin Republican Governor Scott Walker and Milwaukee Mayor Tom Barrett is arguably the most significant statewide election in 2012.  Governor Walker created a firestorm of controversy when he signed a law limiting the collective bargaining rights of state and local government employees not long after his election in November 2010.  Since then over 900 thousand Wisconsin residents signed a petition for the Governor’s recall.  The economic health of Wisconsin is a key issue in the recall election.  Democrats argue that Republican budget cuts and the corresponding decline in state and local government employment have hurt the state’s economy, while Republicans argue that more fiscal discipline and the promise of lower taxes and regulations will increase Wisconsin’s economic growth rate.

 In the past few days the debate in Wisconsin has shifted to an argument over the reliability of competing jobs data series.  The Democrats point to the widely used establishment payroll survey that estimates monthly employment.  The payroll survey oversamples larger employers but has a difficult time tracking the births of new establishments that are (by definition) not part of the sample frame.

The Republicans, led by Scott Walker, note that the Quarterly Census of Employment and Wages (available since 2001), shows stronger employment growth than the establishment survey.  There is no question that a Census of employers provides more accurate information than a survey.  In fact, the survey data will eventually be revised according to benchmarks provided by the Census.

The problem is that Wisconsin politicians are impatient and the Census data are not available as quickly as the survey data.  The latest official Census figures are only available through September 2011, while the most recent establishment survey is reported through March 2012.  Earlier this week Governor Walker presented preliminary fourth quarter Census data that showed annual employment growth through the end of 2011 while the payroll survey indicated a loss of jobs over the same period.

The following chart, using data from the BLS website, presents comparable non-seasonally adjusted data from the Census and payroll survey.  The employment levels from the Census and establishment survey have a correlation coefficient of .985 over the past decade.  This is not surprising because the Census data are used to benchmark the payroll survey.  Nonetheless, the two series appear to begin to diverge in the second half of 2011.

The next chart illustrates the annual percentage change in the two employment series.  Year over year changes are presented (e.g. the percentage change in employment from January 2001 to January 2002 is reported in January 2012).  The percentage changes in the two series have a correlation coefficient of .99 over the past decade.  The payroll survey indicates that employment growth slowed in the summer of 2011 and turned negative in October 2011.  Employment has declined even further in the first three months of 2012 in the payroll survey.  In contrast, the Census data indicated that employment growth did not decline in the summer of 2011, and according to Governor Walker’s preliminary data, that trend continued throughout the last quarter of 2011.

The two employment series yield conflicting information about employment growth in 2011.  This has generated some political controversy but when the final Census employment data are reported for the last quarter of 2011, they will be a benchmark for revisions of the payroll survey data.  When all revisions have been made the two series are likely to track closely in 2011 as they have throughout the past decade.

It is understandable that political rivals have different views about which policies are more likely to promote growth and prosperity.  It is unusual, however, for candidates to disagree about the reliability of economic data series.  Census data are more reliable than a survey.  The payroll survey provides a valuable, but somewhat noisy, indicator of employment changes that have occurred since the latest Census benchmarks.  Stronger employment growth in the Census data in the last half of 2011 may well be the result of a higher “birth rate” of establishments and start-ups that aren’t included in the payroll survey’s sample.

A Tale of Two (Types of) Cities

The key to high wages, rapid economic growth rates, and low unemployment is human capital investment.  Economic growth fueled by human capital investment is more durable and stable than growth fueled by real estate speculation.  We need only look across cities, not countries, to understand this fact.

The ten fastest growing metropolitan areas in the U.S experienced population growth of about 40%, on average, between 2000 and 2010.  One typically expects strong economic conditions in cities with large inflows of population.  The promise of better pay and employment prospects is often what causes internal migration.  Today, however, some of our fastest growing cities have the weakest local economies because of the collapse of local real estate markets over the past four years.

The ten fastest growing metropolitan areas between 2000 and 2010 include: Austin TX, Bend OR, Cape Coral-Fort Myers FL, Greeley CO, Las Vegas NV, Myrtle Beach SC, Palm Coast FL, Provo-Orem UT, Raleigh NC, and St. George UT.  Three of these cities: Austin, Provo and Raleigh have a much more educated workforce than the cities whose growth was largely fueled by a real estate boom.  The “human capital” cities have 50% more adults with a graduate degree and 58% more adults with a college degree, per capita, than the “real estate” cities.

The following chart shows the composite unemployment rate between 2000 and 2011 for the three “human capital” cities, the seven “real estate” cities, and the U.S. unemployment rate overall.  The unemployment rate increased sharply in the recession, but less so for cities with a highly educated workforce.

An educated workforce is the key to high wages and rapid economic growth.  The recession took a much greater toll on the economic prospects of less educated workers.  More educated workers are better able to adapt and learn when market conditions change.  Cities that benefited from a real estate and construction boom just five years ago have been unable to generate jobs for all their new residents and now have some of the weakest local economies in the U.S.

Swing States

As I watch the Michigan Primary results on Tuesday night, I will be focused on exit polls about the state of the economy in Michigan.  Do voters in Michigan feel like the economy is on the rebound?  Will voters in other key swing states be optimistic about the economic recovery by November?

Earlier this month Ryan Avent of the Economist posted a chart showing changes in unemployment rates in swing states.  Although the chart seemed to show that labor markets are recovering faster in swing states, this may not be the case.  In an earlier post  I showed that much of Michigan’s drop in the unemployment rate is due to a declining labor force.  Today Tami Luhby of CNN Money made a similar point – the unemployment rate in Michigan and other swing states is falling, in part, because of workers leaving the labor force.

Good news or bad news can cause the unemployment rate to fall.  A better barometer of the labor market in swing states is the percentage change in payroll employment.  The following chart lists swing states and their employment changes over the past four years.

The chart indicates that Nevada, Florida, Michigan and North Carolina have lost the most jobs (in percentage terms) since December of 2007.  Moreover, ten of fourteen swing states have experienced a larger decline in employment than in the rest of the U.S..  Michigan, Florida and Ohio are the only swing states where employment grew faster in the past year than in non-swing states.

If one looks at the percentage change in employment, rather than changes in the unemployment rate, labor markets appear to be weaker in key swing states than in the rest of the U.S.  The strength of the economic recovery, and employment growth, in these fourteen states may determine the outcome of the Presidential election.