Falling Unemployment and a Shrinking Labor Force

The unemployment rate fell in every state but New York in the past year based on seasonally adjusted data. In 19 states the unemployment rate fell by one point or more.  The largest declines were in Alabama and Michigan, where the unemployment rate fell by two percentage points over twelve months.

Some of these apparent improvements in labor market conditions are exaggerated by declining labor force participation.  If a state’s unemployment rate falls because discouraged workers stop looking for work and drop out of the labor force or because people leave the state, the economic news is mixed.  In 13 of the 19 states with the biggest drop in their unemployment rate the labor force also declined.  In two states, Alabama and Arizona, all of the unemployment reduction was attributed to a shrinking labor force, and in Nevada more than 90 percent of the reduction in unemployment is due to a shrinking labor force.

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