What’s up with unemployment in Minnesota? The view from the May numbers

Minnesota’s labor force in May consisted of 3,067,999 people, an increase of 1,500 compared to April. The unemployment rate in Minnesota rose from 8.7 percent of the labor force to 9.9 percent of the labor force. This is lower than the national rate of 13.3 percent.

What does this mean? Are we worse off than in April? Let’s take a look at these questions from three angles: how the data are collected and analyzed, how the data are revised over time, and whether any changes are due to random chance.

Labor market measurement

The monthly, state-level data come the Local Area Unemployment Statistics (LAUS) program, “a federal-state cooperative effort in which monthly estimates of total employment and unemployment are prepared for over 7,500 areas.” The Minnesota Department of Employment and Economic Development (DEED), for example, is one of the agencies that works with the federal Bureau of Labor Statistics to estimate employment, unemployment and a variety of other measures for the Minnesota labor market.

The following picture shows the relationship among the key concepts reported monthly by the BLS and DEED:

Starting from the right side of the picture, people currently working for pay are classified as employed and persons searching for paid employment are categorized as unemployed. These two groups make up the labor force. If a person is neither working for pay nor searching for paid employment, then they are not in the labor force. The pool of people who could potentially work for pay consists of the final category on the left, the civilian, noninstitutional population.

The Bureau of Labor Statistics reports all of these numbers for the U.S. economy on the first Friday of each month. The state-level data come out two weeks later.

Remember, all of these concepts refer to working for pay. “Not in the labor force” does not imply not working, as anyone who has taken care of their children or cooked for their family knows.

Minnesota’s labor market figures

Minnesota’s labor force in May consisted of 3,067,999 people, an increase of 1,500 compared to April. The unemployment rate in Minnesota rose from 8.7 percent of the labor force to 9.9 percent of the labor force.

What do these numbers mean? First, the 9.9 percent unemployment rate for May is a preliminary estimate. This means that the analysts at DEED and BLS will look more carefully at the underlying data and adjust the figures for using additional data that may not have been available when they made their original calculations. It could turn out to be higher, lower, or about the same as the original estimate.

This is important for understanding our current situation. Take a look at the following table:

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The labor force was 3,730 people bigger in April than the BLS originally estimated. That might seem good, but when we break this down it turns out that almost 14,000 fewer Minnesotans were employed than we thought and about 17,500 more of them were searching for work. Thus, the collapse of Minnesota’s labor market between February (when the unemployment rate was 2.9 percent) and April (an 8.7 percent unemployment rate rather than 8.1 percent) was worse than we thought.

Ironically this makes May’s numbers look slightly better than they might otherwise appear. Instead of jumping 1.8 percentage points, from 8.1 percent to 9.9 percent, the unemployment rate rose only 1.2 percentage points. Put another way, there were about 20,000 fewer additional people looking for work in May than if we used the original estimate.

Finally, the Bureau of Labor Statistics tries to judge whether the rise in the unemployment rate is statistically significant. In plain language, statistical significance asks whether the result we observe in a sample, such as the survey results on which the labor market measures are estimated, are due to random chance. The jump in Minnesota’s unemployment rate from 8.7 percent in April to 9.9 percent in May was statistically significant, according to the Bureau of Labor Statistics. The increase was not just a fluke caused by something in the sample we drew in May.

Implications for policy

Minnesota’s labor market suffered a massive shock between February and May but is still doing better than the nation as a whole. Further, we can be pretty confident that the trends we observe are not the result of random chance.

The important policy point is that we cannot simply assume that all will be well. The Legislature must act to distribute the CARES Act funds allocated by Congress to support local governments (and thus local employment). The governor and Legislature should think about how state unemployment benefits should be adjusted when federal policies enacted in the wake of the pandemic expire at the end of July. Unless the trends change in June and July, policymakers should be prepared to provide extended unemployment benefits and labor market support in the fall and beyond.