05/09/2018 Meg Slindee

What Causes High Unemployment Rates?

When it comes to unemployment rates across the U.S., much is written and discussed about the effects of joblessness, but what about the causes? We were curious about whether our job market data could tell us anything about what causes one U.S. city to have more unemployment than another.

In the most recent LinkUp Job Market Diversification Report, we think we found one possible answer. Large cities with a high job market diversification score are correlated with lower rates of unemployment. In other words, the more diverse the market in terms of job category, company, and industry, the healthier the job market.

What is a job market diversification score? This year, LinkUp came up with a method for assigning a metric to metropolitan statistical areas (MSAs) in our database that measures how varied that city’s job market is in terms of industries, job types, and companies. A city that is heavily dependent on one company or industry would have a lower score. Think: Las Vegas’ reliance on tourism and entertainment, or Rochester, Minnesota’s reliance on the Mayo Clinic. If tourism or the Mayo Clinic go bust, these cities will suffer. Austin, Texas, however, is not too dependent on any particular industry, company, or type of job, so the fall of one entity will not affect it, giving it a higher score.

Last time, we used job market diversification to predict Amazon’s choice for its HQ2. In this round of job market diversification scoring, we compared the scores with the unemployment rates for cities. In large markets, we found a strong correlation between high scores and low unemployment. San Francisco, for example, has the 4th highest diversification score and has the 2nd lowest unemployment rate among large market MSAs.

Download our Job Market Diversification Report to read our full methodology, view more graphics for large, mid-size, and small markets, and download the underlying data used in scoring. What city are you from? Does your city’s score surprise you? We want to hear from you!

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