A Texas Puzzle: High Employment, High Unemployment Rate

This is an unusual, interesting recession. Personal savings are up, as is personal income. In this recession, unemployment did not increase gradually, it skyrocketed, reaching its recession maximum in just two months.

Currently, Texas has an unemployment rate that is above the national rate, and by a fair bit.  Typically, Texas’ unemployment rate is below the U.S. rate. At the same time, Texas has seen its employment level decline less than the national level, and in Texas employment stands at 95.4% of February 2020’s level, the last pre-recession month, as reported by the Bureau of Labor Statistics (BLS). See Figures 1 and 2. The BLS data is sourced from two surveys: the establishment survey is directed at businesses, while the household survey is directed at households. Meanwhile, the U.S. employment level fell more sharply back in March and April, and today is reported to be either 6.2% below the February 2020 level (in the establishment survey) or 5.35% below the February 2020 level (in the household survey).

4-2fig1.png
Source: Bureau of Labor Statistics. Index by Private Enterprise Research Center. Last reported data point: February 2021.
 
4-2fig2.PNG

Source: Bureau of Labor Statistics. Index by Private Enterprise Research Center. Last reported data point: February 2021.
 
How can Texas have more employment than the U.S., relative to pre-pandemic levels, while at the same time have a higher unemployment rate than the national rate? The answer is found in the behavior of the labor force estimate from the BLS’s household survey. The household survey asks about employment status and about unemployment status. Someone who is actively looking for work but not currently employed is defined as unemployed. The sum of employment plus unemployment defines the labor force, the subset of the population that wants to have a job, and includes both those with a job and those looking for a job. The unemployment rate is simply the ratio of the number of unemployed workers to the labor force.

In Texas, the labor force has not fallen much since February 2020, and currently stands just 1.25% lower than February 2020’s level, as seen in Figure 3. Meanwhile, the U.S. labor force has shrunk twice as much, and stands 2.5% lower than one year ago. So Texas has a smaller decline in employment, but also a smaller decline in the labor force, and the resulting unemployment rate in Texas is higher than the national level.

This can be looked at in two ways. First, Texas has maintained its employment level at a value closer to the pre-pandemic level than has the U.S. as a whole. That is quite a positive statement, the more so because Texas faced not only the direct impact to its economy from the pandemic and policy responses to the pandemic, but also the impact of falling oil prices and the accompanying decline in oil and gas activity.

4-2fig3.PNG
Source: Bureau of Labor Statistics. Index by Private Enterprise Research Center. Last reported data point: February 2021.

However, one could also say that Texas is growing in population, so a smaller decline in the labor force is to be expected, and the unemployment rate is telling us that a higher percentage of people want to work but are unable to find work than in the U.S. as a whole.
So, the glass is half full, or half empty, depending on how one looks at it.

What about other states? Looking at the four states with the largest populations, Figure 4 shows that New York and California have higher unemployment rates than Texas, and their employment levels relative to pre-pandemic levels are lower than Texas. As for Florida, although it has a lower unemployment rate than Texas and the U.S. as a whole, its current employment level falls further below its February 2020 level than does Texas.  So, comparisons of Florida and Texas, like comparisons of the U.S. and Texas, give mixed results. However, it should also be said that Florida’s results in these dimensions also dominate results for the nation as a whole.

4-2fig4.PNG 
Source: Bureau of Labor Statistics. Last reported data point: February 2021.
 

Posted: April 05, 2021 by Dennis W. Jansen, Carlos I. Navarro, Andrew J. Rettenmaier