High Unemployment Could Plague Midwest for 10 Years

June 22, 2011 -- With experts predicting it may take as long as a decade to rebuild the job base in key pockets of the U.S., it appears increasingly likely that the economy will be the number one issue in the 2012 election.

Swing states like Michigan and Florida are still plagued by high unemployment, so the trend of recovery over the next year could be a make-or-break statistic for the president's re-election.

A U.S. Metro Economies Report released this week by the U.S. Conference of Mayors had bleak predictions for 48 metro areas in which the report said it will take more than 10 years for unemployment to fall to pre-recession levels. Six of those metro areas are from Arizona and California, which were hit hard by the collapse of the housing market in 2008.

Eighteen of these metro areas are in the Rust Belt states of Ohio, Michigan and Indiana whose economies are largely based on manufacturing and were slammed by the decline of the auto industry during the 2008-2009 recession.

"We are anticipating a very slow return to full employment," said Jim Diffley, the chief regional economist at IHS Global Insight, who prepared the report.

Not all economists agree with Diffley's dismal predictions.

"I think clearly those numbers are pretty much overblown," said Christopher Thornburg, a principal economist with Beacon Economics. "This idea that unemployment is going to stay high is just not right."

Thornburg said the bleak predictions are unrealistic because if there are no jobs in an area, people will either move or drop out of the labor force.

"That they can see out to what's going to happen in 10 years is just lying to everybody in sight because things change. There have been multiple cities that have been sort of declared dead that have come back to life," he said.

Florida, which carries 29 electoral votes, had the fourth-highest unemployment rate in the country in May 2011 at 10.6 percent. Only Nevada, California and Rhode Island had higher rates, according the Bureau of Labor Statistics. Michigan, with 17 electoral votes up for grabs, had 10.3 percent unemployment.

"Certainly [unemployment rates] will affect the elections," said Herb Asher, a political science professor at the Ohio State University. "But the key question is not whether these metropolitan areas have gotten back to where they are in the past. The key question is the direction their local economies are going."

Asher said unemployment numbers can be a guide to how much improvement is being made.

"People will be watching the unemployment rate and whether it is above or below 8 percent," he said. "If employment is above that it will reflect badly on the president."

A dip below that level would be a symbolic and would likely shift people's perceptions, Asher added.

"Everybody knows that unemployment cannot be at 5 percent by next year. If it gets down to 7 percent that's still too high, but you will probably have more people perceiving that we've turned the corner," he said.

The national unemployment rate is currently 9.1 percent. The metro economies report predicted it would not fall below 8 percent until 2013.

Steve Herwat, the deputy mayor of operations in Toledo, Ohio, said he does not agree with the report's predictions that Toledo will be one of the slowest metro areas to reboot its labor market.

"Although it will take us awhile to recover we don't believe it will take us 10 years," Herwat said. The metro economies report "takes a look at a lot of statistical measures and doesn't take a look at what is really happening within cities."

Diffley explained that the manufacturing industry had an "incredible number of layoffs" in late 2008 and 2009 that outpaced the number of workers needed for production. Even without the recovery, those companies had to increase hiring to keep up with sales, which made cities like Detroit and Dayton appear to be recovering faster than anywhere else in the country.

"The magnitude of cycle was sharper, a sharper fall and a sharper increase," Diffley said.

For the first quarter of 2011 Detroit's unemployment rate dropped 3.5 percentage points, more than any other city in the country, but after having lost 18 percent of its jobs in the past 10 years, this growth in employment was just a drop in the bucket.

"People get really excited. They say here's a plant that's going to hire 600 people, but we've lost hundreds of thousands of jobs," said Rick McHugh, a staff attorney for the National Employment Law Program. "If you were wackin' them by tens of thousands of jobs per month you cannot recover when the economy is only adding a couple thousand jobs nationally."

"The consensus is that manufacturing employment is going to continue over the long term to decline," Diffley said. "In the midwest Rust Belt states it's hard to see where any new growth will come from."

In 2009 Michigan's unemployment rate hit a 10-year high at 14.1 percent. Indiana reached 10.9 percent unemployment and Ohio got to 10.6 percent.

Asher said Ohio will definitely be a state to watch during the general election because while Cleveland is one of the strongest Democratic sections in the state, the slow recovery and high unemployment rates could mean bad news for President Obama.

The metro economies report predicted that Cleveland would be one of the slowest major metro areas to recover to pre-recession unemployment levels, a statistic the city of Cleveland disputes.

In 2008 the president won Ohio by 4 percentage points, but Republicans won back five House seats, a senate seat and the governor's mansion.