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Double-checking the data: McFadden overstates unemployment in northern Minnesota

Seasonal effects are quite strong, but the annual data show that unemployment in Bemidji, as on the Iron Range, rose during the recession and has now returned to its 2007 level.

I try to keep up with the latest data on Minnesota’s economy, so I was glad to read Eric Black’s recent interview with Senate candidate Mike McFadden. Instead of appealing to generalities, McFadden cited specific numbers to make his case.

Black writes, “Shortly before our interview, it came out that the June unemployment rate for Minnesota was 4.5 percent, the lowest since February of 2007. I asked McFadden whether he was aware of the state’s unemployment rate? Replied McFadden:

Do you know what the unemployment rate is in the Iron Range, Eric? It just came out, too. It’s close to 10 percent. Do you know what it is in Bemidji? It’s close to 11 percent. Do you know what the labor participation rate is in Minnesota? The lowest it’s been in 30 years. Do you know what the wage growth has been over the last six years? The average weekly wage has gone up $8 … ."

The latter two points, on labor force participation and average wages, made sense to me. Why labor force participation has fallen and why average real wages have been stagnant have both been the subject of much economic research and the answers to both questions are myriad.

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Consider the fall in labor force participation. The Council of Economic Advisors recently analyzed this phenomenon and I wrote about it last year, with the upshot that there is a combination of demographic change (in particular, baby-boomer retirements), structural change (new technologies causing disruptions in the labor market) and short-term problems (that is, the Great Recession) causing the decrease.

Similarly, average real wages have been stagnant for more than 40 years. The average real wage in 1970 was $8.73 (in 1982-84 dollars) and in 2013 it was $8.79 in constant dollars. That’s about a $2.40 per week increase in average pay for someone working 40 hours per week. Like labor force participation, economists focus on a variety of causes: globalization, changing technologies, the decline in labor unions, and a host of other possibilities.

The unemployment numbers, however, did not ring true. Perhaps I hadn’t kept up carefully with the data. I went to the Minnesota Department of Employment and Economic Development (DEED) website and clicked on the data tab at the top of the page. The data tools section of this page provides access to a wealth of information on employment, unemployment, and wages in Minnesota.

The best source for data on unemployment rates is the Local Area Unemployment Statistics (LAUS) program. I examined data for January 2007 to June 2014; since the recession began in December 2007, so we can get a before-and-after view of unemployment.

Using monthly data and choosing the Arrowhead region as a proxy for the Iron Range, we get this picture:

Unemployment rate — Arrowhead Region

Unemployment rates have been below 8 percent since 2012. (What about those spikes, you ask?  They show up because these data are not adjusted for seasonal effect; so, for example, employment in construction falls during the colder months and thus the unemployment rate rises.)

Hmmm … perhaps the regional data is masking what is going on at the county or city level. So, let’s look at Aitken, Carlton, Cook, Itasca, Lake and St. Louis counties:

Unemployment rates by county, monthly

Except for the seasonal spikes, the unemployment rate across counties shows the same result: Unemployment has been below 10 percent since 2012. If we use annual data it’s even clearer:

Unemployment rates by county, annual

Unemployment rates peaked in 2009 and have been falling since then.

What about cities? Let’s start with the monthly numbers:

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Unemployment rates by city, monthly

Once again, the seasonal spikes put the unemployment rate up near 10 percent, but the overall trend is below 10 percent, as shown in the annual data:

Unemployment rates by city, annual

The same story is true for Bemidji and the surrounding area. Here are the monthly data:

Unemployment rate, Bemidji, monthly

The seasonal effects are, not surprisingly, quite strong, with unemployment rates fluctuating by four percentage points from season to season. The annual data show that unemployment in Bemidji, as on the Iron Range, rose during the recession and has now returned to its 2007 level.

Unemployment rate, Bemidji, annual

What do we learn from this from this analysis? First, the unemployment data do not match Mike McFadden’s description of what is happening in these local economies. Unemployment is not stuck at 10 or 11 percent in areas such as Bemidji or the Iron Range.

Second, the data indicate that these areas experienced a sharp recession that was similar to other areas of the country with industries tied to the manufacturing sector (e.g. mining.) Unemployment spiked and returned to its pre-recession level; wages continued to be flat, just as they were before the recession and as they’ve been under Democratic and Republican administrations and Congresses for 40 years; labor participation rates are lower than they’ve been in 30 years for a variety of reasons, none of which are specific to Minnesota’s economy or to current economic policy.

Expanding non-ferrous mining and building more oil pipelines won’t solve these problems, nor will reducing government regulations or expanding charter schools. These are the kinds of policies that benefit individual industries and groups and might be worth pursuing on their own merits. They won’t help get more Minnesotans in the labor force, reduce long-term unemployment, or get wages growing again.

I reached out to the McFadden campaign and received the following:

We were using older data and for that we apologize, but they point remains the same: unemployment rates in northern Minnesota remain higher than the state average and that’s because Al Franken has supported Presidents Obama’s agenda 97% of the time, which has resulted in too much regulation and not enough jobs.

— Tom Erickson, McFadden for Senate spokesman

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