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Bubble States Underemployment Rates Haunt Yellen

A housing recovery that began in 2010 has improved the outlook in states where construction booms and busts played a disproportionate role. Photographer: Ty Wright/Bloomberg
A housing recovery that began in 2010 has improved the outlook in states where construction booms and busts played a disproportionate role. Photographer: Ty Wright/Bloomberg

May 22 (Bloomberg) -- Cliff Powell lost his job as a mechanical engineer in 2008 as Florida’s construction industry slumped. He hasn’t landed a lasting permanent position since.

“You think about giving up, but you can’t,” said Powell, 57, who’s held four jobs and more than two dozen, mostly part-time, temporary contracts. “If you say ‘I give up,’ then that’s it, you’re over.”

Residents of the U.S. states that suffered the steepest home price declines and record foreclosures face labor markets that remain impaired five years after the most severe recession since the 1930s ended.

Underemployment, including those in part-time jobs who want full-time work, remained highest in 2013 in Nevada, Arizona, California and Florida, with those states also seeing some of the steepest increases since 2007, an analysis of data from the U.S. Bureau of Labor Statistics shows. Oregon also has one of the highest rates.

“That tells you we still have a very weak economy with lots of slack,” said Peter Diamond, a professor at the Massachusetts Institute of Technology in Cambridge who won the 2010 Nobel Prize in economics. The labor market “has improved a lot from the depth of the Great Recession” though “in previous recessions would still be viewed as bad as it gets.”

The weakness supports Federal Reserve Chair Janet Yellen’s view that the unemployment rate decline to 6.3 percent from 10 percent in October 2009 can’t be relied on as a sole indicator of progress.

Dashboard Approach

Yellen favors a dashboard approach that also includes underemployment, the labor force participation rate and the share of unemployed out of work 27 weeks or longer -- all of which remain far from levels before the start of the December 2007 recession.

“State level data provide evidence on this point,” said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore who worked at the Fed’s division of monetary affairs from 2004 until 2008. “The labor market is in worse shape than is apparent from the unemployment rate alone, and this calls for continued accommodative policies.”

A housing recovery that began in 2010 has improved the outlook in states where construction booms and busts played a disproportionate role.

U.S. housing starts rose 67 percent from 2009 to 2013 as low mortgage rates fueled a rebound. Prices rose 44 percent in Las Vegas in the last two years, 38 percent in Phoenix, 35 percent in Los Angeles and 28 percent in Miami.

Completed Foreclosures

About 2 million foreclosures have been completed in California, Florida, Nevada and Arizona since August 2007, almost 40 percent of the 5 million nationwide, according to data firm RealtyTrac.

Houses are now going into foreclosure less often. The share of loans in foreclosure and seriously delinquent in California fell to 2.93 percent in March from 12.5 percent in December 2009, data from the Mortgage Bankers Association show. The rate has also dropped from peaks in Nevada, Florida and Arizona.

The job market is also improving, with California adding 340,200 jobs in the year ended in April and Florida creating 246,800 slots, the Labor Department reported last week. They only trailed Texas’s 348,000, bolstered by a domestic energy boom. Nevada and Arizona each added more than 40,000 jobs.

Good Job

That hasn’t made finding a good job easy. The broadest measure of unemployment -- which includes part-time workers who can’t find full time jobs, discouraged laborers, and those marginally attached, who want a job but are not actively looking -- averaged 18.1 percent in Nevada last year, 17.3 percent in California, 16 percent in Arizona and 14.3 percent in Florida. The U.S. rate was 13.8 percent.

“The housing crash is still having a profound negative impact on the job market,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

Even with the housing recovery, more than 1.7 million construction jobs have been lost as of April since its peak in April 2006, Labor Department data show.

Florida’s jobless rate has fallen to 6.2 percent, just below the U.S. average. Yet the unemployed there encountered the longest job searches among the U.S.’s 50 states in 2012, the latest year available, with a median of 28 weeks.

Companies are reluctant to hire in the wake of the crisis and “scarring from the Great Recession,” said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York. “States that were hurt the most, it’s probably hardest to recover.”

Accepting Positions

To get by, the unemployed are accepting positions such as part-time retail jobs that don’t match their skills, said Linda Kurtz, 53, who worked in human resources in the San Diego area for 15 years, and started her own career advising company in November.

“There is still great competition,” she said. “When you apply for a job, there are so many people applying.”

Kurtz, who currently has eight clients and works mostly with mid-level professionals, said some people take on a “portfolio career” of part-time assignments that include consulting, while looking for a full-time job with benefits. Such arrangements avoid having to drop out of the labor market, she said.

Shrinking Workforce

Yellen has been particularly concerned about the shrinking workforce. The share of people working or looking for jobs slumped to 62.8 percent in April, matching the lowest level since 1978.

While an aging population and the retirement of baby boomers has contributed, Yellen said May 7 to the Joint Economic Committee, “the weak state of the labor market partly explains why we’ve see a decline in labor-force participation.”

Nevada suffered the single biggest drop in its labor force as a percent of its population, falling 4.7 percentage points to 57.3 percent in the five years ended January 2014.

That large declines have occurred in states hurt most in the recession, including Nevada and California, suggests the cause is “the effect of the cyclical downturn” rather than “just demographics” reflecting aging, Wright of Johns Hopkins said.

The state data provide “compelling evidence” cyclical factors “account for the bulk of the post-2007 decline” in the participation rate, Fed economists Christopher Erceg and Andrew Levin said in a paper published in April 2013.

Cyclical Slack

Economists worry that what appears to be slack tied to business conditions in hard-hit states could ultimately become permanent unemployment with job seekers losing needed skills.

“The distinction between structural and cyclical is not so clean,” and a “cyclical problem” can become “more structural” in time, said Amir Sufi, finance professor at the University of Chicago’s Booth School of Business.

Long-time unemployed still are finding some assignments, though often settle for less pay or hours than they want.

Barbara Spaulding, 59, of New Tampa, Florida, spent the past nine years looking for full-time, permanent work before landing a job working in emergency response and recovery at the Pasco County Office of Emergency Management. She starts working May 27.

“There are more jobs, but there are also a lot of very well-qualified people applying for them,” she said. “I think of all of these talented people not working. It is a crime.”

Powell, father of three children ages 19 to 26, said his wife lost her teaching job two years ago and moved to California for a position. She comes home on holidays. He extended his search to that state, yet didn’t find work there either.

“I’ve been a roller coaster ride since 2008,” said Powell, a fire protection specialist with more than 25 years of experience. He says reports of improving job prospects and lower unemployment rates are hard to believe in construction. “Most people I deal with in the industry say it’s a joke,” he said. “Unemployment isn’t dropping, people are giving up.”

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Carlos Torres at ctorres2@bloomberg.net Gail DeGeorge, Brendan Murray

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