First-year economics students learn that the unemployment rate is an imperfect measure of labor market performance. The rate can decrease not because of an improving economy, but because the economy is so lousy that people give up looking for work. And a rising unemployment could mean that economic optimism is enticing new job seekers to flood the job market, where they are temporarily unemployed merely because they haven’t yet locked into that perfect gig.
New York City has seen good job growth in the past couple years, but its unemployment rate is rising too. This must mean that fresh-faced newcomers are streaming across the Hudson River or along the Metro-North or LIRR to get their piece of the pie.
Or not. According to the Independent Budget Office’s analysis of the mayor’s executive budget:
One dimension where the city is lagging behind the U.S. overall is the unemployment rate. While payroll employment has been surging in the city, the resident unemployment rate has also been rising. It now stands at 9.5 percent, up 0.7 percentage points from a year ago. The rate is not going up because an improving economy is drawing more job seekers into the labor force. On the contrary, while payroll employment increased by 72,700 in 2011, the count of employed city residents went up by only 5,500, and the total resident labor force shrank by 19,100. The first quarter of 2012 was even more anomalous: as payrolls grew by 32,900, the number of city residents employed fell by 16,700, while the number unemployed rose by 17,200.
Some of this disjunction may be due to city jobs going to commuters, shifts from self-employment to payroll employment, and growth in the number of multiple job-holders, but all these factors appear to leave the bulk of the mystery unexplained. [Emphasis added]
There are other interesting tidbits in the report, like the fact that—after years of handwringing over their inexorable climb—spending on city workers’ pensions and Medicaid is leveling off, even as the cost of fringe benefits for city employees and debt service continues to climb.
And in projecting significantly smaller budget gaps than the mayor, IBO ascribes the different numbers to an abundance of caution by the mayor. “Some of this caution may be in response to continued national and international economic uncertainty, particularly in the euro zone,” the report reads, “but some of it may also be the result of doubts about the viability of a key budget proposal for 2013. At risk is the assumption of $1 billion in revenue from the sale of new taxi medallions.”