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Minnesota's shutdown would jack up jobless rate

  • Article by: DEE DePASS
  • Star Tribune
  • July 1, 2011 - 9:25 AM

The roughly 25,000 state workers who stand to be laid off as a result of the government shutdown could jolt Minnesota's unemployment rate from 6.6 percent to 7.6 percent -- a figure not seen since October 2009.

To put the job losses in perspective, consider that the new pink slips would erase most of the 29,300 jobs gained in all of 2010.

The layoff of about 25,000 at the state level would "add slightly under'' 1 percentage point to the unemployment rate, said Steve Hine, the lead labor market economist who crunches Minnesota's monthly employment numbers for the state.

But additional layoffs will likely follow, as state-funded agencies, nonprofits and private contractors fail to get paid by the state, Hine noted. The reduction of paychecks flowing into the economy also will hurt retailers who depend on consumer discretionary spending.

"The thing that people don't factor in very well is that these social service firms and nonprofits [and small businesses] don't really have very much of a cushion," state economist Tom Stinson said. "They are pretty much living from check to check. If you delay these [state] checks because of the shutdown ... that puts them at risk because they are so thinly capitalized.''

Ultimately, the amount of economic pain inflicted by a shutdown will depend mostly on how long it lasts, Hine said. "If it's a short few days or a couple weeks, maybe the impact will not be as great," he said. "But if it goes on much longer than that, you will see the consequences for the economy really starting to mount."

In the meantime, the Department of Employment and Economic Development is bracing for an onslaught of new unemployment claims.

"State employees will be filing for unemployment benefits," said Monte Hanson, spokesman for the department. "We will end up serving a lot more people."

State employees who process unemployment insurance claims will stay on the job. However, most of Minnesota's 49 workforce centers will close, and those state workers will be laid off during the shutdown. That will hurt job seekers who are already in need of services, Hanson noted.

The losses would put Minnesota back to unhappier times, but not the worst times. In 2009, the state lost 80,800 jobs before employers added 29,300 positions in 2010. In the 12-month period between May 2010 and May 2011, the state added a net 15,200 workers.

It's progress. But a sudden surge of furloughed state workers will shove the unemployment rolls above 221,000 at a time when the state's economic recovery was gaining momentum.

Both Hine and Hanson will be laid off during a shutdown. Hanson's job helps the state disclose jobs information to the public. Hine and his team track the unemployment data that are used by the federal government to issue unemployment benefit extensions to the long-term unemployed.

"I gotta think there will be mounting pressure here very quickly," Hine said. "Maybe this is a teaching moment. Sometimes you just need a cold bucket of water thrown over your head to make you realize what you have."

Dee DePass • 612-673-7725

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