The Unreported Reason Why Detroit’s Unemployment Rate Dropped

The media have begun celebrating the drop in Detroit’s unemployment rate.

Media reports note that the city’s unemployment rate stood at 7.5 percent in May, the lowest in 17 years. The city’s unemployment rate was 8.4 percent in April.

Linking to a news article on the drop in unemployment, Lt. Gov. Brian Calley tweeted, “Michigan is the comeback state and Detroit is the comeback city.”

An article in MLive attributed some of the drop to new construction projects, saying that developers who get tax incentives from the city usually agree to hire Detroit residents.​

​​​​​​ForTheRecord says: Missing from media accounts was the decreasing labor force in Detroit.

James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, said that about two-thirds of the drop in the city’s unemployment rate is due to a smaller labor force.

Hohman said the number of employed city residents went up 15,856 between May 2010 and May 2017. That was a 7.6 percent gain. But Hohman pointed out there were also 33,619 fewer people in the labor force, a 12.2 percent loss.

If the city had added the same number of jobs but also maintained the size of its May 2010 labor force, the unemployment rate would be 18.8 percent.

Correction: The unemployment rate for May in the city of Detroit if the labor force had remained at May 2010 levels would be 18.8 percent.