EYE ON THE PIE: Yes, unemployment rates are confusing

There is a parody going around on the internet of the famous Abbott and Costello routine "Who's on first?" This one concerns the unemployment rate and the fact some people choose to drop out of the labor force after experiencing a prolonged period without a job.

The central point Bud and Lou make is that the official unemployment rate excludes those who have given up looking for jobs yet are available and willing to work. These we call "discouraged workers."

The comedians say the unemployment rate is 9 percent while 16 percent are not working. It's a funny routine based on a real issue. The numbers, however, are wrong.

A person is in the labor force if he has a job or is actively looking for a job. As of December 2011, 8.3 percent of the nation's civilian labor force was unemployed and an additional 0.5 percent were "discouraged workers." That puts the percent not working at 8.8, not 16.

Those are national figures from the Bureau of Labor Statistics. What about Indiana and its counties? We have to approximate those numbers. To do so let's go to the extreme and assume that whatever shrinkage has occurred in the labor force is equal to the number of discouraged workers. It's a stretch, but it's also a start.

The latest unemployment rate for Indiana (not seasonally adjusted) was 8.7 percent. If we account for the shrinkage in the labor force (37,700) since 2007, the rate rises to 9.8 percent.

Despite the fact the labor force has declined nationally and in Indiana during the past four years, it has not declined in all 92 Indiana counties. In fact, over the past 48 months, the labor force has grown in 28 Indiana counties. This includes the "fabulous four" (Tippecanoe, Knox, Martin and Warrick) where employment actually increased.

In Knox County (Vincennes), as an example, the number employed grew by 673 while those unemployed advanced by 590. When we add these numbers, it shows an increase in the labor force of 1,263 from 2007. We do not know if this labor force growth was because people within the county were encouraged to seek jobs or whether the favorable situation (job gains in a depressed economy) enticed people to move to Knox County.

In another 24 Indiana counties, the labor force grew despite the decline in the numbers employed and the rise in the numbers unemployed. Were those out of the labor market brought back in by the recession because their families needed the money? We don't know. But in each case the growth in the labor force suggests, on balance, no discouraged workers.

This would be true for Clark, Bartholomew, Vigo and Vanderburgh counties.

Finally we come to the 64 Hoosier counties where the labor force did shrink and the unemployment rate was higher if calculated including discouraged workers as being unemployed and being in the labor force. In an extreme case, Elkhart County's unemployment rate was 11.2 percent in 2011 and would have been at 20.6 percent if discouraged workers were counted.

Abbott and Costello were right: the percent not working is higher than the official unemployment rate in places where the labor market shrank. Unemployment rates, however, are not nearly as funny as a baseball comedy routine.

Opinions are solely the writer's. Morton Marcus is an independent economist, speaker, and writer formerly with IU's Kelley School of Business.