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Economist Eric Fruits on Oregon’s jobless rate

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Sunday, February 01, 2009

Behind Oregon’s jobless rate

Oregon's unemployment rate is among the highest in the country and is heading toward double digits. If employment does not improve, one out of every 10 Oregonians will be looking for work by the middle of the year. In the state's rural counties, it may get closer to one in six. To be sure, Oregon has been affected by the worldwide recession. A bad economy is sure to bump up unemployment. Business closures, layoffs and downsizing are all going to send a share of the workforce to the unemployment line.

{safe_alt_text} BY ERIC FRUITS

Oregon is different, though. It's different because it has what seems to be a permanently high unemployment rate. In more than half of the past 30 years — through good times and bad — Oregon has ranked in the top 10 states for unemployment. Even through much of the dot-com boom, Oregon's unemployment was among the highest in the country.

While economists, businesses, and policymakers are focused on today's unemployment, it is worthwhile to take a look at the bigger picture and ask: Why is Oregon's unemployment always higher than the rest of the country's and is there anything that can be done about it?

Unemployment benefits. The Economic Policy Institute in Washington, D.C., ranks Oregon as one of the more “generous” states for unemployment benefits. On one hand, unemployment benefits help to put food on the table. But overly generous benefits allow job seekers more leeway to hold out for higher wages than they would otherwise, thereby slowing their return to work.

Taxes and regulations. Taxes and regulations raise costs to firms offering employment. Rigidity in employment laws adds to a firm's costs of growing its workforce. In addition, employer-provided health insurance in Oregon is expensive because of regulations mandating that insurers cover specific conditions, procedures or treatments. Such mandates raise the costs of adding and retaining employees.

Minimum wage. A binding minimum wage creates a surplus of unskilled labor. At $8.40 an hour, Oregon has one of the highest minimum wages in the country. This has the effect of decreasing the amount of labor demanded by Oregon businesses and increasing the amount of labor supplied by Oregon workers. On the upside, owners can be choosy: One Portland coffee shop, Ladybug Organic, has a five-page job application that includes 10 essay questions. Of the 2,000 people who have downloaded the application from the shop's website, 150 people have completed it and only 25 have been offered jobs.

Migration. If people are moving to the state faster than jobs are being created, higher unemployment results. Oregon has a well-deserved reputation for livability. As a result, people from outside of Oregon are attracted to the state and people who are here already are hesitant to leave: Some people would rather be unemployed in Oregon than find work out of state.

Solutions to Oregon's unemployment come in two sizes: big and small. Big solutions require large-scale public and/or private spending. Small solutions are regulatory changes that make it less costly for firms to hire and retain employees.

On the public spending side, many Oregonians are hopeful that an injection of state and federal infrastructure spending will pull people off the unemployment line and onto construction crews. By the time projects are funded, requests for bids are issued, contractors are in place and workers are hired, we may already be six months into a recovery. But as long as we avoid Alaska-style Bridges to Nowhere, increased infrastructure spending will foster long-run growth and improve future employment opportunities, thereby reducing the unemployment rate.

On the private side, investments by businesses produce the gains in productivity that fuel future production and consumption. Broad-based investment tax credits and similar investment incentives are not as alluring as large-scale spending programs and showpiece infrastructure projects. On the other hand, much of the blame for the current recession has been placed on the credit crunch and the resulting decline in private investment. Broad-based investment incentives would mitigate some of the crunch and encourage firms to begin spending and hiring again.

Young people make up many of the seemingly permanently unemployed. Oregon's high minimum wage puts them in a Catch-22: Their inexperience makes them unemployable at the high wage so they cannot get experience to justify the wage. A training wage equal to the federal minimum wage for younger workers would help break the wage-experience cycle.

The U.S. wants to see unemployment drop to rates much lower than we are seeing now. Oregon has an especially difficult challenge. This means fostering growth by public spending on transportation infrastructure and encouraging long-run private investment.

Eric Fruits is president and economist with Portland consulting firm Economics International Corp.

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Steve Milford, CWDP, PHR
0 #1 Spot On!Steve Milford, CWDP, PHR 2009-09-24 09:31:28
This article contains points that I have been preaching to people for a while. As someone who helps people find jobs, as the rate goes higher, I see humor in the fact that people do not look at the causes of the rate but who instead believe the media who hype the rate.
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