Saturday, November 17, 2012

The most important number you never (ever) think about

So let's start with the fairly routine and boring story that is the monthly update to the unemployment rate in Pennsylvania. Yesterday we learned the state's unemployment rate went down by a tenth to 8.1%.

Yawn.   But bear with me for a minute, even if this is something you might skip.   So the unemloyment rate is one thing, but the size of the labor force in Pennsylvania is another somewhat boring story unto itself.  Basically the labor force in Pennsylvania is shooting upwards.  'Shooting' at least in a Pennsylvaia context.  I count a +2.4% growth in the state's labor force over the last year and at least for the moment accelerating. Remember that number for a minute, it's important. But a graph:

So more obsessive metrification?  Are you someone in the least bit concerned with the Commonwealth of Pennsylvania's budget next year.  Say with revenues or expenditures at the state level that get translated into revenues for an innumerable number of local governments, school districts and social service agencies!

Here is the thing.  The state of Pennsylvania's annual budget calculation is now heavily dependent on the official revenue projections that will be generated by the relatively new Independent Fiscal Office. I feel a kindred spirit at least in that I once worked as an analyst at the Congressional Budget Office(CBO) year and years ago. The new office in Harrisburg is charged with coming up with an official baseline for anticipated revenues the state will bring in and that number will shape the entire budget process. 

Now it turns out that the IFO's methodology is heavily dependent on what it projects is going to be happening to the size of the state's labor force next year.  You can read more on their methodology and if you skip to the last slide you will see it emphasized that "labor force participation rates are crucial." Basically their methodology relies heavily on what is projected to be happening to the states labor force. 

So what are they projecting?  Again you can read the slide yourself per previous link. This slide lays it out.  Look for the row for Pennsylvania's labor force and the column with the projection out 2012-2017. What do you read? Then go back and compare to what the latest data is telling us is happening in 2012.

Basically, if you are looking to the state for money of any kind next year the most important number you should care about is what is projected for the state's labor force next year. Bigger labor force = more revenue, lower labor force = less revenue.  Thus you probably care about what the lastest actual data is on the state's labor force even though it is a big jump as to how (or even 'if''!) that data gets cycled back into the projection which is what matters for the budget debate.  

How dependent are Pennsylvania's budget projections on the size of the labor force?  One more of their slides explaining their core methodology on this point:




Blogger Jake said...

Chris, I was looking at the Census QuickFact sheet and noticed the field 'Private nonfarm employment, 2010' The number for Pennsylvania is at 4.9 million, which says it's a 2% decrease since 2000. How is this so if the labor force is larger than ever?

Monday, November 19, 2012 10:23:00 PM  
Blogger C. Briem said...

you may be mixing up labor force and emplopyment metrics, though it does not matter really. Lots of growth since 2000 is probably the shortest answer. See graph on this post. About +2% since mid 2000.

Tuesday, November 20, 2012 9:13:00 AM  

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