What Drives Employment?

By Arthur Pinkasovitch | August 17, 2011 AAA

While numerous states, including Michigan, Florida, California, Nevada and others struggle with double-digit unemployment, other regions face unemployment rates below 5%. North Dakota is currently the most employed state in America with only 3.3% of residents unable to find work. The other states include Nebraska (4.1%) and South Dakota (4.7%). Throughout the last decade, these states have maintained a significantly lower unemployment rate than the national average. With 9.2% of the national workforce out of jobs, it is worth looking at what drives employment in these states. (For more on unemployment, check out The Unemployment Rate: Get Real.)

TUTORIAL: Economic Indicators

North Dakota
Despite having fewer per capita college graduates than the national average, this Midwest state sports the lowest unemployment rate in the country. Petroleum, food processing and agriculture are the keynote industries which drive a substantial portion of region's growth. Additionally, North Dakota was impacted much less by the recent economic downturn as financial institutions maintained minimal exposure to subprime mortgages and the state government was diligent in maintaining a healthy, balanced budget. Continued innovation in the oil gas industry, particularly in shale fracking, has provided a natural stimulus to North Dakota's job market. According to the American Petroleum Institute, the oil and gas industry delivered $476 billion in benefits to the American economy last year, much of it in the form of job creation.

Nebraska
Warren Buffet's home state is heavily reliant on its agricultural, freight transportation, manufacturing, telecommunications and IT sectors. Although Nebraska's stable economy provides comfort and benefit to most people, those who are unemployed actually find themselves in a worse situation than residents of other states. Nebraska, among the other high employment states of North and South Dakota and New Hampshire qualify for only two of the four available tiers of extended benefit programs. As a result, unemployment benefits are offered for only 60 weeks here, while states which are categorized as Tier 4 (Nebraska is Tier 2), offer benefits for up to 99 weeks. Not to pick specifically on Nebraska, but these are actually common problems in all the states with the lowest unemployment rates. Perhaps these weaker benefit programs is among the factors which encourages people to find work, even if at a lower wage.

South Dakota
Similar to its northern neighbor, South Dakota enjoys a consist level of healthy employment levels, with current unemployment rates at arguably natural levels. Workers are able to find jobs in a wide variety of growing industries ranging from service, government, agriculture and national defense. Following the service sector, Ellsworth Air force Base is South Dakota's second largest employer. Favorable regulation toward the financial industry has been a prime catalyst in attracting financial institutions such as Wells Fargo and Citibank to designate their head office location in the state. South Dakota does not have a maximum allowable interest rate banks can charge on credit cards issued around the country. Overall, South Dakota offers a very attractive business environment, including the lowest taxes in the nation, to maintain a steady employer base. (With low taxes South Dakota has become a nice home for small businesses. For other states similar to South Dakota, see Where Should Your Small Business Incorporate?)

New Hampshire
Although New Hampshire has a slightly higher unemployment rate of 5.2%, a similar problem exists here as the aforementioned states; since almost everyone who is willing to work is currently employed, small business owners often find it very difficult to find suitable employees for vacant positions. Tourism, agriculture and manufacturing are the leading employment drivers within the New Hampshire economy. New Hampshire even holds the historic record for the state with the lowest unemployment in a given month. Set in May 1987, only 2.1% of residents actively looking for work were unsuccessful. With an ideal geographical position, the state is gifted with nutrient rich soil to support healthy farming operations and a mountainous landscape which attracts skiers and hikers alike.

The Bottom Line
There are a few general lessons which can be learned from these states regarding the dire unemployment situation prevalent in the United States. Most importantly, areas which offer incentives to businesses will attract jobs; whether these incentives come in the form of business tax relief of less regulation is up to the politicians and economists to decide. Secondly, as Kentucky senator, Paul Rand, might suggest, cutting unemployment benefits may encourage people to stay off the unemployment list. Of course, such action would best be implemented during an economic boom when jobs are abundant. Finally, as in the case of New Hampshire, sometimes a low unemployment rate is simply the product of a advantageous physical environment. (For more information about unemployment around the world, read Countries With The Lowest Unemployment Rates.)

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