A Quantile Regression Approach to Examine Changes in County Unemployment Rates in Indiana during the Great Recession

Arun K Srinivasan,Kathleen G Arano

doi:10.52324/001c.11094

Abstract

We take a closer look at changes in county unemployment rates in Indiana during the Great Recession and evaluate how local population and the mix of sectoral employment influence these patterns. Using a quantile regression approach, we specifically observe the impacts on counties on both tails of the changes in unemployment distribution. We find the impact of sectoral composition of a county’s workforce depends on its geographical classification. Overall, greater reliance on pro-cyclical industries, most notably manufacturing, magnifies the increases in unemployment during the recession. This effect is further amplified for MSA counties. In contrast, counter-cyclical industries, education in particular, insulates the counties in the top 10th percentile of the distribution of changes in unemployment rates, and a stronger insulation effect is observed for MSA counties. At the bottom 10th percentile, education marginally amplifies changes in unemployment rates for MSA counties, whereas it insulates non-MSA counties from the same distribution.

Highlights

High unemployment rates are one of the widely recognized indicators of a recession
We examine whether the impact of local structural characteristics, i.e., the mix of sectoral employment, is affected by the geographical classification of a county as captured by its Metropolitan Statistical Area (MSA) vs non-MSA status
We find consistent evidence across the three conditional distributions that counties that started with higher unemployment rates pre-recession experience larger increases in unemployment during the Great Recession

Summary

Introduction

High unemployment rates are one of the widely recognized indicators of a recession. During the Great Recession of 2007-2009, the national unemployment rate reached a peak of 9.5 percent, from 5 percent in December of 2007 (U.S Bureau of Labor Statistics, 2012). At the end of the recession in June 2009, state level unemployment rates ranged from a high of 14.6 percent in Michigan to a low of 4.2 percent in North Dakota. At the start of the recession in October 2007, the average county unemployment rate was 4.1 percent with a high of 6.3 percent in Fayette County and a low of 2.6 percent in Dubois County. By the end of the recession in June 2009, the average county unemployment rate was 11.5 percent with a high of 20.2 percent in Howard County and a low of 6.0 percent in Davies County. The apparent variation in county unemployment rates highlights the need to examine changes in county unemployment across its entire distribution rather than solely the conditional mean

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