Widely Varying State Unemployment Rates Tell an Interesting Story

The unemployment rate in the U.S. is 7.6%. But that's the average.

For example, the unemployment rate in California and Illinois is much higher at 9.5% and 9.6%, respectively, while at the other extreme, Nebraska's rate is 3.8% and that of North Dakota is 3.3%.

It's like the man who has an overall average temperature even though he has one foot in the freezer and another on the hot stove. On average he's ok, but he sure doesn't feel all that well.

Of course, an average national unemployment rate of 7.6% is still pretty bad, but it's not nearly as bad as 9.6%.

And the more interesting question revolves around why unemployment rates in the various states differ so much.

States of Depression says this:

"It's true enough that the U.S. economy is slowly recovering, but job growth has been uneven across the country. While employment in the South and West is improving, the jobs engines in Northeast and Midwest have stalled—and in some cases are in reverse.

According to the February state jobs report, . . . unemployment in Illinois has ticked up to 9.5% from 8.9% in the last year. The jobless rate has also increased to 8.7% from 8.3% in Indiana and to 7.2% from 6.9% in Wisconsin. The major exception to the jobs regression in the Midwest is Ohio, where the rate has dipped to 7.0% from 7.5% thanks in part to an inchoate shale boom.

Michigan is also doing marginally better than a year ago, helped along by a recovering auto industry.

Meanwhile, New Jersey (9.3%), New York (8.4%) and Connecticut (8.0%) remain stuck in neutral. Their unemployment rates are virtually unchanged from a year ago while Pennsylvania's has risen by a half-of-a-percentage point to 8.1%. Unemployment in Maine (7.3%), Massachusetts (6.5%) and New Hampshire (5.8%) is better than in other Northeastern states, but no better than it was a year ago. Rhode Island's jobless rate has plunged to 9.4% from 10.7%, but remains the highest in the Northeast.

The only other states to experience such a steep drop were California (to 9.6% from 10.8%), Florida (to 7.7% from 9.0%) and Nevada (to 9.6% from 11.8%). Not coincidentally, they were among the states that lost the most jobs during the recession and experienced the sharpest declines in real estate values. All three states have been helped by the Federal Reserve, which has propped up their housing markets with low interest rates and purchases of mortgage-backed securities.

Farm belt states such as Nebraska (3.8%), Iowa (5.0%), Kansas (5.5%) have also been helped by the Fed's loose monetary policies, which have kept commodity prices high. However, the real dynamos of the recovery, have been fossil-fuel rich states like North Dakota (3.3%), South Dakota (4.4%), Wyoming (4.9%) and Montana (5.6%). Still, it says something that the only states doing well in the Obama economy are those with an abundance of highly-valued natural resources."

Summing Up

The states are indeed laboratories of experimentation and innovation.

States with an abundance of natural resources and farm belt states are doing well. However, most other states are continuing to struggle.

The future employment story in America will be all about the private sector, innovation, risk taking  and the resultant job creation, coupled with a reformed tax system.

It won't be about the government knows best gang taking actions aimed at 'saving the middle class' or taxing the job creators more heavily.

That's simply not the way the free market system works, and the employment situation today in the fifty states makes that point very directly.

That's my take.

Thanks. Bob.