Maryland’s Misleading Unemployment Rate

In discussions surrounding employment and the economy, the unemployment rate is often the focus of attention. However, an equally important number is the labor force participation rate. While these terms may seem similar, they capture different aspects of the labor market, and understanding their distinctions is crucial to gaining a more accurate picture of Maryland’s workforce dynamics.

Unemployment Rate: A Focus on Active Job Seekers

The unemployment rate is the more commonly cited figure in news reports and government updates. In Maryland, as across the country, this rate is calculated by dividing the number of people who are unemployed by the total number of individuals in the labor force. For the purposes of this measure, the labor force includes only those who are actively seeking employment. As defined by the U.S. Bureau of Labor Statistics (BLS), a person is considered unemployed if they are not working but have actively looked for work within the past four weeks.

Unemployment rate is calculated dividing the number of people claiming unemployment with the state by the total number of people in the labor force, and then multiplying by 100 to get a percentage. For example, if Maryland has 3 million people in its labor force, and 100,000 are actively seeking work, the unemployment rate would be approximately 3.3%. This figure, while useful, only represents a portion of the state’s population that is without a job.

Another important factor in this is that Maryland only allows people to claim unemployment for 26 weeks. This means that if a person has been unemployed for 27 weeks, they can no longer claim unemployment benefits, and will likely no longer file for unemployment, resulting in their dropping off from the official unemployment count. This is where labor force participation rate comes into play.

Labor Force Participation: A Broader View

The labor force participation rate offers a broader perspective. This rate measures the percentage of the working-age population (typically individuals aged 16 and over) who are either employed or actively looking for work. Unlike the unemployment rate, it includes individuals who are employed as well as those who are unemployed but actively searching for jobs.

More importantly, the labor force participation rate also indirectly reveals how many people are not actively engaged in the workforce, either because they are retired, enrolled in school, caring for family members, disabled, or simply discouraged from seeking employment. These individuals are not counted in the unemployment rate, even though they are technically not working.

In Maryland, as in many other states, the labor force participation rate is often much lower than 100%, reflecting that a significant portion of the population is not engaged in formal employment. For example, if the state’s labor force participation rate is 63%, this means that 37% of Maryland’s working-age population is neither working nor classified as seeking work (i.e. no longer eligible for unemployment due to exceeding 26 weeks, or possibly not working due to another reason such as disability).

Why the Gap Matters

A low unemployment rate can give the impression that the economy is thriving and nearly everyone who wants a job has one. However, this doesn’t account for those who may have stopped looking for work due to frustration with their job prospects, or those who may no longer qualify for unemployment benefits. These individuals, while not counted in the unemployment rate, are still part of a broader issue affecting the state’s workforce.

Additionally, many people may leave the labor force for other reasons, including disability, retirement, or education. While these are legitimate reasons to step away from work, they contribute to the gap between the unemployment rate and the labor force participation rate.

One group that frequently highlights this distinction is discouraged workers—those who have given up on job searching because they believe there are no jobs available for them. Since they are no longer actively seeking work, they aren’t included in the unemployment rate, but they do factor into the lower labor force participation rate. According to labor economists, this can create a misleadingly optimistic picture of employment conditions, especially in times of economic recovery or downturn.

While Maryland’s unemployment rate is often used as a key indicator of economic health, it’s important to also consider the labor force participation rate for a fuller understanding of the workforce. The labor force participation rate reveals how many working-age individuals are actually engaged in the job market, and it helps account for those who may be capable of working but are not currently seeking jobs. Together, these two metrics provide a more comprehensive view of Maryland’s economic landscape.

So where does Maryland currently stand? As of this article, Maryland’s unemployment rate has changed from 3.3% January 2020, 8.8% in May 2020, to 2.9% in August 2024. However, Maryland’s labor force participation rate has also changed, from 69.3% in January 2020, to 65.8% in May 2020, to 65.5% August 2024.

To give these numbers better context, we can calculate the employed percentage of Marylanders by subtracting the unemployment percentage from the labor force participation percentage. This puts Maryland’s employed percentage at 66% January, 2020, 57% May 2020, and 62.6% August 2024.

So while Maryland’s unemployment rate has indeed reached better levels than pre-pandemic, Maryland’s employed population percentage is still 3.4 percentage points lower than pre-pandemic.

Story by multiple RFHC contributors