Differences in unemployment between states

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Sometimes it is good to take a look at your country at a more divided level than at the most aggregated level. Let’s take a look at unemployment rates of various states (thanks to the BLS for the data). Hawaii, Utah, and our very own Virginia have the lowest unemployment rates (Oct 2006) at 2.1, 2.5, and 2.9% respectively. The highest unemployment rates are residing in South Carolina, Mississippi, and Michigan at 6.6, 6.7, and 6.9% respectively. That’s more than a 4% gap between them.

Does this tell us a little something about labor mobility and transaction costs? It is understandable that the unemployment in Hawaii would be low as we’d imagine that more jobs are created over time and due to the high costs of relocating to Hawaii they may tend to be filled by the locally unemployed instead of the nationally unemployed. Seems like a possible explanation. But why Utah? 2.5% nestled between Colorado (28) at 4.4% and Nevada (22) at 4.2%. West Virginia (41) is sitting at 5.1% unemployed while VA is sitting at 2.9%

Now can we explain this by costly relocation expenses? Probably not, Alaska is 48th with 6.4% unemployed, not too easy to move there, but then again, the increase in number of jobs is probably less prevalent in Alaska than Hawaii. Alaska also has its governmental problems of paying people to live there. In terms of unemployment fighting, maybe not the best solution. Perhaps people are more willing to relocate due relative reduction in transportation costs due to the promise of future subsidized living in Alaska. I haven’t heard much about this program in a while, so I’m not positive about the details or whether or not it still exists. Just throwing around some ideas.

Georgia (34) (while not a peach in its own right, excuse the pun) is below South Carolina by nearly 2%, While Alabama (6) is sitting at a pretty 3.2% unemployment rate, a good 3.5% below Mississippi’s astounding 6.7% unemployment rate. While I don’t have all the answers I attribute the unemployment rate differences between adjacent states to a few things here are 5 of the many factors (not relayed in order of importance.)

  1. Transaction (relocation) costs.
  2. Asymmetric information—Unemployed in Birmingham don’t know they can go to Birmingham for a job.
  3. Family—A kind of transaction cost, or at least expected transaction costs. A family oriented unemployed person in Birmingham knows that moving to Jackson while affordable means having to drive 3 or 4 hours whenever he/she wants to see their parents. This additional costs may outweigh the benefits of finding a job faster in a market more favorable for job-seekers.
  4. Government regulations and legislation—Policies and Laws like the Alaska pay to live here may have direct or indirect impacts on the unemployment rate. The size of welfare and unemployment checks could make a big difference. I’ve personally heard stories of people who were collecting unemployment checks from states with higher payouts (based on costs-of-living) while living and looking for work in states that are cheaper. Thus the unemployed have relocated but are still on the pay-rolls of the state that pays more, in order to take advantage of higher checks. This skews the distribution of rates across the country.
  5. Make-up of the unemployed—Who are the people that are unemployed? DC’s 3% higher unemployment than Virginia may be explained by the make up of those unemployed. All the displaced government workers between political regimes, who are looking for new jobs but want to stay in the political realm may not be willing to relocate.
  6. Illegal Immigration—A topic that surely contributes to the unemployment rate, but merits its whole own discussion.

Comments or other explanations?

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2 Responses to “Differences in unemployment between states”

  1. Eli Says:

    How do you think illegal immigration affects unemployment? Do you think there are a finite aggregate number of jobs that illegal immigrants eat into?

  2. Stewart Says:

    One possibility is that different groups have different elasticities for supplying labor.

    Another reason for disparity is non pecuniary compensation. Two jobs with the same wages have entirely differnt compensations based upon their location. Myself, I would rather live in New York than in Fairfax.

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