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.

Posted by Jim Newton on Feb 1 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.