Scattered Showers for Labor Day 2001

Job losses, falling wages hit many states

by Edith Rasell and Yvon Pho

After 10 years of growth, the U.S. economy has faltered. In 2000, the economy gained 2.84 million jobs; by contrast, between March and June 2001 it shed 217,000 jobs. The sizable job declines of 165,000 in April and 93,000 in June are the largest monthly drops since the recession of the early 1990s. The unemployment rate, which usually increases relatively late in a slowdown, has already risen to 4.5% from 3.9% in the last eight months.

The change in the economic climate is having disparate impacts in states and regions across the country, and thus some are experiencing more economic problems than the national numbers may indicate. A state-by-state comparison shows:

• Employment growth has slowed in 38 states, located mostly in the eastern half of the U.S.
• The Midwest (Indiana, Michigan, and North Dakota) and several Southern and border states (Arkansas, Delaware, Maryland, Mississippi, and Alabama), plus Maine and Idaho have been hardest hit in terms of job and wage declines.
• Manufacturing employment has been declining since its business-cycle peak in April 1998. Manufacturing job losses intensified in the second half of 2000 and early 2001 in the Midwest (Michigan, Minnesota, Wisconsin, Indiana, Ohio, Missouri, and South Dakota) and the South (Georgia, Arkansas, Mississippi, Kentucky, Tennessee, Virginia, Maryland, West Virginia, and Delaware). New Jersey and Maine have been hard hit in the Northeast, and Alaska, Idaho, and Montana have suffered accelerating manufacturing job losses in the West.
• Low-wage workers (those at the 10th percentile) are seeing smaller paychecks in 22 states. But 10 states have experienced real wage declines among high-wage workers at both the 80th and 90th percentiles, a trend that typically is less common during an economic slowdown.

The Federal Reserve has attempted to stimulate the economy by reducing interest rates, and the federal income tax rebate will return some $38 billion, primarily to middle- and upper-income taxpayers who, policy makers hope, will spend the money and spur economic activity. Whether these actions will be sufficient to head off a deepening downturn and possible recession is uncertain. But it is clear that the effects of the slowdown on employment opportunities are real, and they are already being felt in many states across the country. Unfortunately for laid-off workers, the important safety nets that can prevent a loss of employment from turning into hardship (i.e., unemployment insurance and welfare) may be inadequate to do the job.

The following state-by-state analysis uses monthly data from the Bureau of Labor Statistics averaged over consecutive 12-month periods ending in May 1999, May 2000, and May 2001 (the May 2001 data were the most recent available at the time of the analysis). Combining a full 12 months of data enhances the reliability of the findings. During the first two periods, through May 1999 and May 2000, the U.S. economy was experiencing strong growth, and so we compare the changes between these two periods with the change in the period ending in May 2001 to fully measure the shift from a period of falling to a period of rising unemployment. (Details on methodology are available in the appendix.)

Employment growth
In the 12-month period ending in May 2000, non-farm payroll employment had risen 2.5%, or 3.2 million jobs, compared to the 12-month period a year earlier. In contrast, in the 12 months ending in May 2001 employment grew just 1.5%, or 2.0 million jobs, with the number actually declining at the end of this period. States in all regions of the country experienced slowdowns in employment growth. As shown in Figure A (and Appendix Table A-1), employment grew over 50% more slowly in the period ending in May 2001 than in the earlier period in nine states, all located in the Midwest and South. (In Mississippi, employment actually fell.) Employment growth declined, though not as quickly, in an additional 29 states (including the District of Columbia) located along the Eastern seaboard, in the upper Midwest, and throughout much of the West. In only 13 states (mainly in the South and West) was employment growth as strong or stronger in the period ending in May 2001 than it was in the earlier period.

Manufacturing employment
Over the course of this business cycle, manufacturing employment peaked in 1998 and has been declining since. Jobs in the 12-month period ending in May 2000 were 188,000 below the previous 12-month period; in the period ending May 2001 the year-to-year decline swelled to 211,000. In 21 states (see Figure B and Appendix Table A-2) the pace of job loss accelerated. (In an additional 15 states the decline in manufacturing continued, though at the same pace or slower.) In only 14 states and the District of Columbia did manufacturing employment rise between the last two periods, but, even among these states, in only nine were there more manufacturing jobs in 2000-01 than two years earlier (1998-99).

Unemployment
For the U.S. as a whole, the average annual unemployment rate declined between the first two periods, from 4.4% to 4.1%. It averaged 4.1% in the most recent 12-month period as well, but this combines the very low unemployment rate of the last half of 2000 with the rising rates of early 2001. Seventeen states, located mostly in the Midwest and South, experienced increases, as shown in Figure C. (Appendix Table A-3 shows the unemployment rates for each region and state for the three periods.)

Wages
During the late 1990s, real wages (i.e., adjusted for inflation) rose for most workers. In the period ending in May 2001, wages in the nation as a whole continued to rise, but the effects of the economic slowdown began to be felt in many states, with workers across the wage spectrum experiencing downturns. At least part of this decline in real wages was due to the faster 3.5% inflation rate over the 12 months ending in May 2001 compared to the 2.7% rate in the prior 12-month period.

Despite improvements nationally, low-wage workers, who typically fare poorly during a downturn, have begun to experience real wage declines in many states. Real wages at the 10th percentile (the wage level that is higher than 10% of all wages in a state but lower than 90%) rose or were unchanged during the 12 months ending in May 2000 in 40 states and the District of

Columbia; they fell in only 10 states. But by May 2001, real wages at the 10th percentile fell in 21 states plus the District of Columbia (see Figure D and Appendix Table A-4).

Median real wages (half of all wages are higher and half lower) rose or were unchanged during the 12-month period ending in May 2000 in all but 10 states. But by May 2001, median wages had fallen in 19 states in the Northeast, Midwest, Plains, and Rocky Mountain regions. States where both the median and 10th percentile real wages declined include New Hampshire, Indiana, Alabama, North Dakota, Montana, Idaho, Washington, New Mexico, Alaska, and Hawaii. Although median real wages declined in many states, for the nation as a whole they rose 0.5% over this period. Median nominal wages only fell in Hawaii.

Traditionally, wages of high-paid workers ar
e less exposed to the ups and downs of the business cycle. And although real wages at the upper end of the wage distribution continued to show robust growth in the nation as a whole (with increases of nearly 2% or more), many states saw declines in high wages, including those in the Northeast, the South, the upper Midwest, and the intermountain states. Between the 12-month periods ending in May 1999 and May 2000, real wages at the 80th percentile rose in all but 14 states. But over the most recent 12 months, 80th percentile real wages fell in 20 states; in an additional nine states, wage growth was zero or slowed by 50% or more (Figure E and Appendix Table A-5). At the 90th percentile real wages rose or were unchanged in all but 10 states between the May 1999 and May 2000 periods. However, over the next 12 months real wages at the 90th percentile fell in 15 states, and growth slowed by 50% or more in an additional eight. Nominal wages (unadjusted for price changes) fell at the 90th percentile in Maine, Oklahoma, New Mexico, Alaska, and Hawaii.

The hardest hit and the least hit
Figure F and Appendix Table A-6 show the states that are most and least affected by the downturn. Indiana and Alabama have sustained the greatest impacts, with total employment growth dropping by more than 50%, manufacturing employment declining steeply or unemployment rising, and real wages falling at the 10th, 50th, 80th, and 90th percentiles. Other states hardest hit in terms of both jobs and wages are Arkansas, Delaware, Idaho, Maine, Maryland, Michigan, Mississippi, and North Dakota. In addition, wages fell in at least three of the four points examined on the wage scale in Alaska, Hawaii, Montana, New York, New Mexico, Oklahoma, and Vermont. Severe job impacts-declines in manufacturing and overall employment and/or an increase in unemployment-have been felt in Iowa, Kentucky, Minnesota, Missouri, Ohio, South Dakota, Tennessee, and Wisconsin.

States that have largely avoided employment or wage impacts can be found in the West (Arizona, California, Wyoming, and Utah), the South (South Carolina and Texas), the Midwest (Kansas), and the Northeast (Connecticut, Massachusetts, and New Jersey).

The shredded safety net
As unemployment rises, job growth slows, and real wage growth slows or declines, workers rely more heavily on safety net programs like unemployment insurance, minimum wage legislation, and welfare (specifically Temporary Assistance for Needy Families, or TANF). But these programs are inadequate to meet the demands that may soon be placed upon them. Averaged across the country, unemployment insurance benefits replace less than one-third of a worker’s lost wages.¹ In 28 states, the average weekly unemployment insurance benefit is too low to lift a one-parent, one-child family above the poverty level.

As for welfare, the federal legislation passed in 1996 imposed a lifetime limit on receipt of benefits of 60 months; as a result, many working women who had used the system in the past may be unable to rely on welfare for income support in the event they are laid off-and this group typically faces high rates of unemployment during a downturn. These workers are also among the most likely to fail to meet the earnings and hours-of-work criteria to qualify for unemployment insurance, and among the least able to find new jobs. The 2002 reauthorization of TANF will provide an opportunity to address these shortcomings.

Since 1997, the minimum wage has been set at $5.15 an hour, or $206 per week for full-time work. Legislation pending in Congress would raise this rate by $1.50 over three years to $6.65; without this increase, the real value of the minimum wage will drop to $4.71 an hour by 2004 (given a 3% rate of inflation). An increase in the minimum wage would not only raise incomes for the nation’s lowest-paid workers, it would also make it easier for them to satisfy the minimum earnings requirements and qualify for unemployment insurance if they are laid off.

The authors thank Brendan Hill for research assistance.

Endnotes

1. Jeffrey Wenger, Divided We Fall: Deserving Workers Slip Through America’s Patchwork Unemployment Insurance System, Washington, D.C.: Economic Policy Institute, 2001.

Appendix: Methodology

The examinations of employment and unemployment in this report use published data from the Bureau of Labor Statistics (BLS). We derived total employment and manufacturing employment counts from the Current Employment Statistics survey, available at the BLS website. We calculated percentile wage values from the Outgoing Rotation Group sample of the Current Population Survey. For further details see Appendix B, in Lawrence Mishel et al., The State of Working America 2000/2001 (Ithaca, N.Y., Cornell University Press).

BLS generally provides data on employment and unemployment rates at the state level. This report calculates employment levels for U.S. regions and divisions by summing across states, and it calculates unemployment rates by region and division by taking the labor-force-weighted average of the values across the appropriate states.

In generating state-level data, BLS applies state-based models to eliminate some “noise” from the data. It does not make any model adjustments in its statistics for the nation, however, and consequently the state numbers both in the BLS publications and this report may not necessarily sum to the national totals.

Significance levels for changes in state wages vary according to the size of the state. For instance, wage changes of less than 4% for states with a relatively small population are usually insignificant. For more populated states, such as California, changes of less than 2% are insignificant.

Small changes in the unemployment rate are often statistically insignificant. Ninety percent confidence intervals were calculated by adjusting the error range of the state-level unemployment rates in 2000 (as reported in the BLS news release, “State and Regional Unemployment, 2000 Annual Averages”). These intervals indicate that changes of less than 0.1 percentage points for relatively larger states and less than 0.9 percentage points for the smallest states are statistically insignificant.

Note also that even statistically significant changes are not necessarily indicative of a longer-term trend. Wage growth, for example, may be significantly above trend in a given month and then revert back to trend in the following months.

Appendix: Tables