The Effect of Geographic Location and the National Unemployment Rate on State-level Unemployment Rates

This paper examines fluctuations in state-level monthly unemployment rates from January 1976 to December 2014, a period of 468 months. Using data from the Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics... [ view full abstract ]

This paper examines fluctuations in state-level monthly unemployment rates from January 1976 to December 2014, a period of 468 months. Using data from the Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics series, patterns in the monthly seasonally adjusted unemployment rates of the 50 states and the District of Columbia are examined. The paper focuses on three primary issues: 1) How closely is a state’s unemployment rate related to the national unemployment rate; 2) How closely is a state’s unemployment rate for a particular month affected by its unemployment rate in prior months; 3) To what extent is a state’s unemployment rate affected by its geographic location.

Among the findings are the effect of the national unemployment rate on state-level unemployment rate varies greatly. The national unemployment rate has a greater impact on some states than it does on others. Also, the effect of a state’s lagged unemployment rate is quite strong for months in the very recent past, but not so strong for months in the more distant past.

For the geographic location issue, the paper determines the extent to which a state’s location, using Census regions and Census divisions, affects its monthly unemployment rate when controlling for the national unemployment rate. Among the findings are 1) states in the South Census region generally have the highest unemployment rates; 2) states in the East South Central
Census division generally have the highest unemployment rate; and 3) states in the South Census region generally have an unemployment rate that’s higher than the national unemployment rate.