Vermont's Declining Labor Force Affects Unemployment Rate

Aug 22, 2013

Even with the recent spike in the unemployment rate this summer, Vermont remains one of only eight states in the nation with a jobless rate below 5 percent, a figure touted often by Gov. Peter Shumlin as evidence of this state’s relative economic health.

Paradoxically, however, the number of Vermonters who report being employed has actually been on the decline for well more than a year. And one analyst says the rosy unemployment rate obscures a more alarming trend in the local labor market.

“Certainly as a general rule, a low unemployment rate is better than a high one,” says Jack Hoffman, a senior policy analyst at the Public Assets Institute. “But the unemployment rate doesn’t tell the whole story.”

Between January 2012 and July of 2013, the number of Vermonters who reported being “employed” dropped by about 4,400, according to monthly household surveys conducted by the U.S. Bureau of Labor Statistics. Over that same time period, however, the state’s unemployment rate dropped by nearly 10 percent, to 4.6 percent.

How to explain the drop in the jobless rate even as fewer Vermonters report being employed?

“What’s happening in Vermont is basically people are dropping out of the labor force, and not being counted as part of labor force,” Hoffman says. 

The reasons for the diminishing workforce are varied and difficult to pin down. Older Vermonters are retiring, to be sure, but recent labor data also show a surprising decline in the number of 25- to 55-year-old Vermonters dropping out of the workforce.

According to Hoffman, a dip in the unemployment rate caused by a shrinking workforce, as opposed to a surge in hirings, is not symptomatic of a thriving labor market. While the jobs climate may not be as bad as it was during the height of the Great Recession, Hoffman says, Vermont is hardly enjoying salad days.

“If you look over time, we’re just not creating very many jobs in Vermont,” Hoffman says. 

Evidence for Hoffman’s claim lies in two sets of data: one from surveys of Vermont households, and one from government surveys of actual employers.

In the most recent monthly survey of households, about 335,700 Vermonters reported being “employed” — the same number as was reported in middle of 2005.

The Bureau of Labor Statistics’ monthly surveys of employers show a similar lack of jobs growth. Seasonally adjusted non-farm payroll employment — essentially the number of jobs in the state — came in at 307,800 last month. 

That’s the same number reported by Green Mountain employers in an identical survey in July of 2006.

Hoffman says the figures indicate a long-term stagnancy that should be of concern to residents, low unemployment rates notwithstanding.

“I’m not sure the general public is aware of how poor Vermont’s performance has been over the past 10 years when it comes to job creation,” Hoffman says. “It’s something we should be talking more directly about — why aren’t we creating more jobs?”

Hoffman, whose organization often lobbies for increased expenditures on government programs, says he doesn’t have an answer to that question. But he says it’s one that’s high on the minds of more than just the 4.6 percent of residents captured in the unemployment statistics.

Mathew Barewicz, economic and labor market information chief at the Vermont Department of Labor, says the conventional unemployment rate doesn’t capture “discouraged” workers who have given up on finding employment, or people in part-time positions who would prefer to be working full time.

Barewicz says the metric preferred by many analysts, so-called “U-6” data, does a better job capturing these labor-market intricacies. And with a U-6 unemployment rate in Vermont in excess of 10 percent, according to the latest Bureau of Labor Statistics numbers, Barewicz says plenty of Vermonters are feeling the economic pain.

“If someone says one out of 20 people can’t find work, like an unemployment rate a little south of 5 percent suggests, then you wouldn’t say that’s a good thing, but it doesn’t sound too bad,” Barewicz says. “But if you take that up to more than one out of 10 people, which the U-6 number shows, now that’s a whole new assessment of the health of the economy.”