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Utah's low unemployment rates gone, but what's acceptable?

Published September 30, 2011 7:58 pm

Local economists say growth is key to a rebound.
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When Gov. Gary Herbert entrusted his economic development advisory council with developing a plan to create 100,000 jobs in less than three years, the act underscored widespread concern that Utah's unemployment rate has been stuck well above 7 percent for more than two years.

Herbert announced his jobs goal on Sept. 20, five days after the Department of Workforce Services reported the state's jobless rate had ticked up slightly in August, just as it did in June and July. The rate now stands at 7.6 percent — off its high of 8 percent in the first three months of 2010 but 0.3 percentage points more than when the recession officially ended in June 2009.

Herbert isn't alone in his desire to see the unemployment rate pushed down to a more reasonable level, perhaps as low as 4 percent, as some economists hope. In January, the Salt Lake Chamber released a "Utah Jobs Agenda" to create 150,000 jobs in Utah over a five-year period. The plan includes education reforms, revamped immigration laws and investments in energy production.

"We have 102,000 unemployed [people in Utah], and our job is to provide economic leadership. So we put our heads together and said to ourselves, how do we create a plan that achieves a stronger economy?" Natalie Gochnour, the chamber's economist, asked.

Like other economists, Gochnour can't imagine Utah's jobless rate will shrink back anytime soon to 2.4 percent, where it sat for four months at the outset of 2007. At that historically low rate, Utah was technically in a state of full employment. Anyone who was willing to work at the going wage rate should have been able to get a job.

Instead, many economists hope for a rate that is at least 2 percentage points below where it is today.

"If our Utah Jobs Agenda got us to 5 percent, I'd feel real good about that," Gochnour said. "If it got us to 6 percent, I wouldn't feel as good about that. But [regardless of the outcome] this state needs to rally to get people back to work."

Mark Knold, chief economist at the Department of Workforce Services, wants the jobless rate to go back to around 4 percent. A rate that low would dry up the huge pool of unemployed workers, which in August was more than three times as large as it was in the early months of 2007. On the other hand, the rate wouldn't be so low that employers would have to overpay for the labor it wants to acquire, Knold said.

"That's the ideal. Labor would like the rate to be lower. Business would like it to be higher. But when you are a bystander on the sidelines that's kind of the balance point," he said.

Knold believes the goals that Herbert and the chamber have set are reachable. In August, the rate of job growth in Utah reached 2.9 percent. If the economy can maintain that pace, the governor will hit his target of 100,000 jobs in 1,000 days. But, Knold added, that would push the unemployment rate down only to about 6 percent.

Similarly, the chamber's plan would probably still keep unemployment "around or just below 6 percent," Knold said.

Both goals are actually conservative and seem to reflect an underlying feeling that the state's economy is likely to struggle for a long time. The goals are based on job growth rates that are considerably slower than the historical rate of 3.2 percent. Even at that rate, Knold said, it could take until the end of the decade to put everyone back to work, absorb the roughly 20,000 people a year who leave high school or college to enter the workforce, and get the jobless rate down to about 4 percent.

"It can happen quicker, if you get employment growth exceeding the average, and that's not out of the question," Knold said. But, he added, "It may be out of the question in the next two years."

There is evidence that the pace of job creation is picking up. After languishing around 1.5 percent in the first five months of this year, the rate shot up to 2 percent in June, 2.5 percent in July, and 2.9 percent in August.

Growth trends, said James Wood, director of the University of Utah's Bureau of Economic and Business Research, are what Utahns should focus on. Wood maintains that unemployment rates may be easy to understand, but are based on small samples of people, which makes them susceptible to error. Because job growth rates are derived from broader samples, they produce a more realistic picture of what is happening to employment.

But, Wood adds, by whatever measure employment is gauged, the recession has put Utah in a place where it hasn't been for a long time. For that reason, high rates of joblessness will be a fact of life for a long time unless growth picks up considerably.

"We are in such a different place than we were in past [business] cycles. We are so connected now to what is going on in Europe, with what is going on in Greece. That affects markets. That affects job growth in Utah," he said.

"We've lost some control over our economy," Wood said.


Twitter: @SLTribPaul






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