Why Michigan's Unemployment Rate Could Be Worse

It would appear that Michigan, the state with the highest unemployment rate in the nation, could have a higher unemployment rate were it not for its dwindling workforce.

[See how workforce numbers affect unemployment rates.]

Michigan's workforce makes up about 3 percent of the nation's total. Over the past 12 months, Michigan's workforce shrank by 92,555 workers (not seasonally adjusted), or 1.8 percent. Jobless workers tend to drop out of the workforce in an especially lousy job market, and Michigan has had just that in this recession. The national workforce fell by 490,000 over the same period, or 0.3 percent. (The unemployment figures are not seasonally adjusted to allow for more accurate comparison).

That means that while Michigan's workforce makes up 3 percent of the national labor force, the decrease in the state's workforce accounts for nearly 20 percent of the entire nation's workforce drop over the past year.

That's quite a decrease given how high Michigan's unemployment rate now reaches. Note: Labor force figures in the U.S. include both employed and unemployed workers. The unemployment rate is a measure of the number of unemployed workers as a percent of the labor force, rather than, say, the whole population. The size of the labor force can therefore affect the unemployment rate—more people giving up their job search and taking themselves out of the workforce can push the rate lower, while more people popping back into the workforce to look for jobs can push the rate higher.

Indeed, between the third quarter of 2008 and the second quarter of 2009, Michigan ranked highest among states for its average rate of unemployed plus discouraged workers, as well as its rate of unemployed plus all marginally attached workers (including discouraged). Marginally attached and discouraged workers are those who have given up looking for work and are not counted in the labor force.

The Labor Department reported last week that Michigan has a 15.2 percent unemployment rate—well above the 9.7 percent national average. If workers had not dropped out of the workforce, however, it would appear that the state's unemployment rate has the potential to be significantly higher.