Fluctuations in state-level monthly unemployment rates: A historical perspective

This paper examines fluctuations in state unemployment rates during the period from January 1976 to December 2012.  Using monthly data from the U.S. Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics series (www.bls.gov/lau/), patterns in the monthly seasonally adjusted unemployment rates of the 50 states and the District of Columbia are examined.  The primary state unemployment measure for a particular month in this study is the difference between the seasonally adjusted state unemployment rate and the seasonally adjusted U.S. unemployment rate.  Since the period covered in this study is 37 years in length, there are 444 monthly unemployment observations for each state.

            In the first part of the study, the major issue considered is the extent to which differences in state-U.S. unemployment rates vary regionally.  To address this issue, the differences are examined at the Census Region level, as well as at the Census Division level and the BEA Region level.  Using a variety of statistical dispersion measures, we determine the extent to which the state-level differences are larger in some regions (or divisions) than in others.  A related issue considered in the first part of the study is regional patterns between those states with positive unemployment rate differences (i.e., the state unemployment rate exceeds the U.S. unemployment rate) and those with negative unemployment rate differences.

            The focus of the second part of the study is on state-level regressions, where a state’s unemployment rate is regressed on the U.S. unemployment rate.  This analysis allows us to determine how closely a state’s unemployment rate tracks the U.S. unemployment rate.  By comparing the regression results across states, we’re able to determine whether a particular state’s unemployment rate tracks the U.S. unemployment rate more closely or less closely than that of another state.  Since the data used spans 37 years, the extent to which a state’s unemployment rate tracks the U.S. unemployment rate may provide evidence of the overall business climate of that state and serve as an indicator for profitable investment.