Bureau of Labor Statistics

Why Is Northeastern Unemployment Soaring?

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By Evan Soltas

Unemployment is surging across the Northeast. In two states -- New York and New Jersey -- the statewide rates of unemployment are higher than they were at any point during the recession. In Maine, New Hampshire, Vermont, Connecticut and Pennsylvania, years' worth of progress against unemployment has been reversed in a matter of months.

Take a look at this map, which shows the net change in statewide rates of unemployment between January and August of this year, the latest month for which data is available. The lighter the blue, the more the unemployment rate has risen; the deeper the blue, the more it has declined.

The Northeast, defined by the Census Bureau as the six New England states plus New York, New Jersey and Pennsylvania, is light blue. Only Massachusetts and Rhode Island have avoided severe upticks. Unemployment growth in the Northeast explains the entire 0.2 percent rise in national unemployment from March to August.

This is a shift from the immediate aftermath of the 2009 recession. The Northeast performed relatively well in 2009 and 2010, largely as a result of a well-educated labor force, its mature economy and a smaller housing bubble in the region. At one point in late 2010, low unemployment in the Northeast kept the national unemployment rate 0.3 percentage points lower than it would have otherwise been, as shown in the chart at left.

That's no longer true. The Northeast is now raising the national unemployment rate by 0.1 percentage points. If the Northeastern recovery had remained on track -- that is, if one assumed its net contribution remained constant since late 2010 -- the national unemployment rate would have been 7.8 percent in August.

So what's going on? Some politicians in the Northeast have challenged the accuracy of the unemployment data, which come from the Census Bureau and Bureau of Labor Statistics. Local officials correctly point out that the unemployment numbers are inconsistent with rising payroll employment, which is measured in a separate survey. The issue is under examination, but federal officials have said it's relatively unlikely recent data are inaccurate, even given small sample sizes.

It's not exactly clear what is holding the Northeastern job market back, though. The slow growth in employment is broad: The region lags behind the nation in job creation in seven out of 10 industry categories.

And the region had weak GDP growth in 2011 to match the poor jobs performance. Last year, the Northeast grew at just 1 percent, versus 1.8 percent for the rest of the country. Two Northeastern states -- New Jersey and Maine -- were actually in recession at the state level.

The Northeast’s particular mix of sectors could be hurting it. The government sector, a large part of these economies, is pulling back sharply in New Jersey, Pennsylvania and Connecticut. The financial industry, long a mainstay of the region's economy, also continues to shrink.

The GDP numbers make it hard to dismiss the Northeast's grim unemployment figures as arising from a quirk in the survey. Even as the economy as a whole improves, the Northeast faces a large and growing problem without a clear policy fix.

Correction: A previous version of this post incorrectly identified the colors on the map.

(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)

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-0- Oct/04/2012 00:10 GMT