Question

In December 2015, Ames, Iowa, had the lowest unemployment in the United States at 2.2 percent of the workforce. At the other end of the scale was El Centro, California, with 19.6 percent of its workforce unemployed. In the depth of the 2008–2009 recession, the unemployment rate in Ames peaked at 5.7 percent. In El Centro, it peaked at 30.3 percent.

How would you explain the difference in the unemployment rates in Ames and El Centro in December 2015? Why is the difference almost certainly not explained by different cyclical unemployment rates?

Answer 1

• Financial crisis of 2008 caused high unemployment across the world and America. But impacts of recession were not uniform across the regions. Some regions were hard hit by the recession.
• Likewise, recovery from deep recession was not uniform either.

• Cause of low unemployment rate in Ames:

• Ames has diversified businesses. Employment in Ames is generated through energy firms, manufacturing sectors, professional services, forestry and agricultural sector. Thus, these diversified industries help in generating sufficient number of employment opportunities.
• Further more, Ames offers cordial and business friendly environment.

• Causes of high unemployment:

• Centro does not offer diversified industrial base. Further, it had substantial exposure to financial crisis or sub prime crisis.
• Further, business policies are not as friendly as prevailing in Ames.
• All these factors contribute towards the differences in unemployment rates prevailing in two different regions.