Local labor market problems growing more acute
Late last week the Ohio Department of Job and Family Services released December 2011 employment/unemployment figures for the greater Columbus area, with the unemployment rate — not adjusted for seasonal variations — dropping to 6.4 percent. This rate was down from November’s 6.6 percent, and was far below the unemployment rate of 7.7 percent in December 2010. And the reaction at the Department of Job and Family Services? According to their spokesman, Benjamin Johnson, “It shows definite improvement … (i)t shows a strengthening economy and an improving job market.”
Ah, if only economic realities were as simple as such calculated and cynical interpretations of local labor market developments. Unfortunately, there are times when the unemployment rate is easily the most misleading economic indicator available and this just happens to be one of those times.
A somewhat more thorough examination of the data suggest a very different reality when objectively examined outside the boundaries of political expedience. In the Columbus area, over the one year period from December 2010 to December 2011, it is true that the unemployment rate fell from 7.7 percent to 6.4 percent. What this very cursory examination does not tell, however, is precisely why the rate fell. During that December-to-December time frame, the number of employed fell by 10,600 workers, while the number of unemployed dropped by 14,000. Taken together, the two sets of figures produced a labor force shrinking by 24,600 individuals, not due to a fundamental improvement in the economy or labor markets, but because people simply lost their jobs and/or gave up looking for new jobs due to the lack of local opportunities. It should also be noted that a similar trend is being exhibited within the overall state’s job market, though perhaps not quite as vividly as in Columbus.
Aside from the “snow job” this implies regarding the interpretation being provided by state officials, there is a much more significant downside to these perverse labor market movements. As I warned about a couple of years ago, under current federal unemployment compensation benefits provisions, jobless people in states with the highest unemployment rates can receive 20 extra weeks of extended benefits; allowing for a potential 99 weeks of unemployment compensation payments.
Unfortunately, with the discouraged worker effect artificially driving down the unemployment rate, it creates the possibility that such extended benefits might be lost to Ohioans. So, how’s that for a punch in the economic gut — the lack of job prospects drives people from the labor force, which causes the unemployment rate to fall, produces a false impression of better labor markets and robs long-term unemployed Ohioans from obtaining extended benefits!
Apparently, in an effort to keep this statistical atrocity from happening with full vigor, some Ohio bureaucrats have begun implementing a disgusting program I first described last August as a potential job-killer. Specifically, some geniuses suggested a plan last fall — now being implemented with the approval of the Public Utilities Commission of Ohio and American Electric Power — to shift electric generating costs away from large Ohio manufacturers to small-and-medium-sized businesses to encourage hiring by those large Ohio manufacturers.
A great deal if you happen to be one of the large, chosen few; but a losing proposition for many smaller companies. Well, within the past few days, the losers have begun to receive their first updated — make that their super-sized — electric bills and the results are quite shocking. Rather quickly, the negatively impacted businesspeople have begun contacting the PUCO with complaints; suggesting (properly) it is not their responsibility to foot the bill for larger companies’ lower electric costs. On an after-the-fact basis, PUCO and AEP officials are now suggesting the new rate structure reflects a truer cost of providing electricity to various entities, even though no such rationale was utilized as the cost-shifting plan was first announced.
And what is a potential impact on small businesses — a major creator of jobs — for being forced to pick up the tab for not being big enough to merit special consideration? Some are suggesting they might be forced to lay off workers to offset the higher electric bills they now face.
There you have it. On the one hand Ohio officials celebrate a misleadingly low unemployment rate which may cost some unemployed people their extended benefits. On the other hand, they allow the shifting of costs-of-doing-business from large to small firms and potentially reduce the number of jobs small businesses can offer Ohioans.
Is it any wonder that some people deeply distrust government?
Dr. James Newton serves as chief economic advisor to Commerce National Bank and is an auxiliary faculty member in economics and statistics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not necessarily reflect those of Commerce National Bank or OSU-Marion/Newark.