Economic Growth With Low Unemployment: Lessons From Fast-Growing Cities In The Pacific Northwest

Can the U.S. economy grow faster now that we are at 4.4 percent unemployment? The experience of fast-growing communities in the Pacific Northwest suggests that we can keep growing, but not too rapidly.

Total economic growth depends on two factors: growth of jobs, and growth of productivity, or output per worker. This article will address the first issue, whether jobs can continue to grow with low unemployment.

Several metropolitan areas in the Pacific Northwest have reached the 4.5% unemployment mark, and they all continued to grow since then.

Seattle-Tacoma is the largest example. In June 2016, unemployment fell to 4.5 percent thanks to job growth at 3.2 percent. In the most recent data, unemployment has dropped even further, to 3.5 percent as job growth continued strong. Boise also continued its fast employment growth well after unemployment reached 4.5 percent. Their unemployment rate is now just 3.2 percent.

Seattle-Tacoma job growth compared to U.S.

Bill Conerly using BLS data.

Seattle-Tacoma job growth compared to U.S.

Portland is an example of a community that slowed after unemployment dropped. In February 2016 the metro area hit the 4.5 percent unemployment level, thanks to 3.3 percent  job growth. They now have just 3.5 percent unemployment, but job growth has dropped to 2.1 percent. That is still a pretty good pace, but not as strong as a year ago. Salem and Couer d’Alene also slowed their growth rates, but unemployment still dropped after the 4.5 percent threshold was crossed.

All of these communities had above-average population growth over this period, making more labor available despite the low unemployment rates. In the cases of Seattle and Boise, the population growth was sufficient to enable businesses to keep hiring. In Portland, Salem, and Couer d’Alene, population growth did not accelerate enough to enable employers to keep hiring.

There are two lessons for the United States economy as a whole from these examples. First, the current unemployment rate is not a barrier to further economic expansion. We economists often think of 5.0 or 5.5 percent unemployment as the natural rate, which reflects the normal time that it takes a worker and an employer to find a match. This is not an iron barrier, however.  When the unemployment rate is low, people come out of the woodwork. Some who had been too discouraged it actively look for work (and therefore were not counted as unemployed) hear from friends that a company is hiring and quickly get a job. Stay-at-home moms who had not been looking for work are recruited by their friends to job openings. And with fewer layoffs, older workers stay on the job longer.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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