Hurricane Katrina and labor market Essay


The occurrence of the Hurricane Katrina has very adverse effects on the labor market. Various states parts of the world, especially the USA, suffered a lot of negative impacts. Labor markets in Mississippi, Alabama, New Orleans, and Louisiana were seriously hit thus slowing their overall economic growth (United States of America’s bureau of the labor statistics 2006). This paper sets out to analyze the effects of the Hurricane Katrina to the most hit areas with great emphasis being accorded to Hurricane Katrina’s impact on the rate of employment, salaries, wages, and other levels of remunerations. The core reason why this topic has been chosen for analysis and discussion is for it to provide a better base for an in-depth understanding of the effect of Hurricane Katrina on the un-improving levels of employment and the continued decline in the levels of economic performance in US and other economies.

This topic is interesting since it involves comparisons on various impacts, beliefs, and associated customs on the effect of Hurricane Katrina on the labor market and the correlation between decline in performance of the labor market and poor economic growth.

Literature Review of the Hardest Hit Areas’ Labor Market

Hurricane Katrina had very many negative impacts to the states that were hard hit. Brown and Patrick (2006, pp. 56-74) believes that the labor market in such hard hit areas has continued to decline while the employment rates have continued to increase long after the first Hurricane Katrina took place. According the United States of America’s bureau of statistics (2006), poor planning for such adverse natural disasters and emergencies has actively contributed to the ever continued negative effects being felt in the labor market. The data from the population survey that was conducted both after and before the Hurricane Katrina hit has indicated negative outcome of the labor market of the evacuees.

Immediately after Hurricane Katrina’s occurrence, the first three months recorded substantial rates of loss of jobs in Mississippi and Louisiana (Kletzer 1998, pp. 36-87). New economic and social status had to be adjusted to cater for the new challenges that had been posed by the disaster. The hard hit areas witnessed some evacuees failing to return to their pre-Hurricane Katrina areas thus fairing even much worse than those who had managed to return. It is however evident that the family and individual characteristics account for a greater percentage of the difference of economic performance of the non-returnees and the returnees. According to Brown and Patrick (2006, pp. 56-74), huge housing damages also contributed to the high rates of non-returnees within Louisiana City and its environs and Mississippi due to the fact that the housing standards had greatly and very negatively been impacted. Investigations carried out in Louisiana have indicated that New Orleans was the most Hurricane Katrina hit area in Louisiana State due to its close proximity to the sea and other water bodies (McIntosh 2007; Treaster and Zernike 2005).

The rates at which the hard hit areas are making recovery efforts and improving on the standards of the labor markets are varied. For instance, the Mississippi Gulf Coast has been reported to be making much better comeback despite the continued economic downfall in the US and all over the world due to the world’s economic recession.  The Hurricane Katrina cyclone caused very devastating and catastrophic flooding in the New Orleans and along the Gulf Coast of Louisiana, Mississippi, and Alabama hence the massive relocation and total migration of people and job displacements. In 2005, the number of layoffs in Mississippi and Louisiana drastically increased rendering many people jobless and posing other social dangers associated with poor economic performance of an economy hence the high employment rates. Whitaker, Blanton, and Goins (2005) also emphasizes on the fact that the damages caused to roads, schools, and transit systems in the hard hit areas led to loss of business in most areas due to lack of the required transport systems and poor communication networks.

According to the analysis of the initiated projects of the Federal buildings, various projects that were meant support the return the people who were mainly hard hit to their homes and their initial financial status were hindered by the fact that most individuals had lost their jobs and hence meeting their basic needs had become a very complex objective to attain. The fact that available information reveals that the Bush administration had asked for an approximated 1.897 billion dollars that was intended to be used by the Navy conversion and shipbuilding and hence assist in the rebuilding and replacement of the damaged equipment outlines the high costs and negative impact of Hurricane Katrina to the hard hit areas (Vigdor 2007).  In Mississippi alone, an approximated 1.1 billion dollars was required to repair various federal facilities and boost the recovery efforts of business organizations in the area. This was believed to be a good effort in resuscitating the dwindling labor market in the state. Harrison County, Mississippi, which was also hard hit by the cyclone, saw its non-farm employment payroll fall by one percent (1%). At the same time, it is evident the Mississippi Gulfport –Biloxi witnessed a high level of job loss though its job loss rate was much lower than Louisiana’s high rate of job losses that were suffered (18000 jobs were lost in Louisiana). Certain aspects of societal composition are perceived to impact on the levels of labor market in most hard hit areas. Groen and Anne (2007) support the fact that Hurricane Katrina’s hit has affected the trends of monetary distribution in the areas thus leading to the formation of diverse societal classes. These classes of poor people end up destabilizing the trends in the labor market (Brown and Patrick 2006, pp. 56-74).

Despite the many negative Hurricane Katrina effects, it evident that some positive results were also realized ones the Katrina Hurricane had hit. For instance, Mississippi had the advantage of its bay bridges being rebuild and being much stronger and taller than it was before. In some instances, the occurrence of the Hurricane Katrina led to a change in the manner in which business operations are conducted. More business relocated to much higher grounds in order to ensure their long term sustainability in case such disastrous occurrence reoccurs. Casino gambling regulations in both Mississippi and Alabama were changed in order to allow for the setting up of the businesses on higher lands and tall buildings. On the other hand, Alabama witnessed a decline in the performance of the fishing industry due to the displacement of people, destruction of the infrastructure in the area, and the damaged fishing fleet. Based on Burdeau’s argument, this clearly explains the many reasons why this paper sets out to determine the extent to which the Hurricane Katrina negatively impacted on the labor markets in such hard hit areas (2005, pp. 2-21).

Appropriate Methodology

In order to achieve the set objectives of this paper, the use of valid, cost effective, and reliable method of analysis would be utilized. The synthetic method of control for various comparative case studies would be used. This method helps in the attainment of an in-depth understanding of the various effects of Hurricane Katrina in the most hit areas of Alabama, Mississippi, and New Orleans, among other related areas. The method is very suitable for use in the analysis of the effects of events and environmental changes to certain aspects of societal ways of life. Indeed the method enhances informative inference to issues regardless the existing comparison units, individuality or group relation of the involved data, or the available number of time periods.

Advantage of this method in this research is the fact that it ensures the attainment of very reliable results that are much easier to present. Additionally, this method is very applicable to this study since it has the advantage of catering for studies that involve large areas and in which the effects or issues the topic of study involves long periods of time. Furthermore, the method, as proposed would facilitate the production of very informative inference regardless of the studies’ number of available units. The Hurricane Katrina greatly hit a number of areas and the discussion of the cyclone on the labor market would best be carried out and analysis of the effects in the areas such as Alabama, New Orleans, and Mississippi done. The usage of the non traditional methods would also be facilitated through the usage of this method. This study method would also enable the collection and analysis of the aggregate available data rather than carrying out a study dominated with various assumptions that may in the end compromise the credibility of the findings and the conclusions made.

The serious challenge the effect of Hurricane Katrina in Mississippi, Alabama, and Louisiana entails the fact that it is not possible to estimate what the current situation would have been should the cyclone not have hit the area. Only the pre and the post Katrina data related to the hard hit areas is utilized in comparison to the residents of the totally unaffected areas to enable the control for the area’s labor market analysis. Control and treatment groups formed help to carry out the labor market trends in order to fully understand the actual effects caused by the Katrina in the identifies areas. This strategic method would ensure that the racial and ethnic composition of the concerned population does not negatively affect the outcome of the analysis. An appealing definition of the results also ensures that only positive aspects of the results are accorded emphasis. Based on Dolfman, Solidelle, Wasser, and Bruce’s article on the various effects of Katrina in New Orleans and other hard hit areas, a synthetic group analysis within the most hit areas would be conducted. The labor markets trends are used as a measure of the effects of Hurricane Katrina in the most hit areas (Dolfman, et al 2007). The synthetic control group chosen was obtained by choosing the state weights in order to make a comparable synthetic control group to the identified treatment group. The regression to be used would be of the form:

Yit = ?i +?Xit + ?1Treatit + ?2 (Treatit × Postit ) +?it

Where; Yit = employment outcome of i individuals within months/year t. The variable Treatit in the regression used help to distinguish between the observations in the control group from those of the treatment group (Burdeau 2005, pp. 2-21). Mississippi, New Orleans, Louisiana, and Alabama’s Hurricane Katrina is of the form:

Yit =?t +?Xit + ?r Rit +?it .

Data Tool Used

            There is numerous data that supports the argument that indeed Hurricane Katrina’s hardest areas are yet to achieve full recovery from the negative impacts of the cyclone. Information on employment patterns, the pre and the post Hurricane Katrina labor force participation related information, information on the employment participation ration, unemployment rate, the average working hours prior to the cyclones’ occurrence, the hourly weekly earnings prior to the disaster, and the number of hours workers have spent working on their main jobs is vital for the actual study of the effects of the Hurricane Katrina on the labor market. The information, which is mainly related to the major hard hit areas, is crucial in ensuring that the actual effects of the cyclone are indeed fully exploited and possible recommendations made (Gabe, et al 2005). This data is vital since it elaborates on the various negative impacts and the specific areas of the labor market. Both the pre and the post Katrina data related to the hardest hit areas of New Orleans, Alabama, Mississippi, and Louisiana, among others helps to understand better the degree of change of in the labor market.

Empirical Model, Results and Discussions

A comparison of these estimates indicates that controlling of the individual and family characteristics has relatively little impact on the estimated effect of Katrina on the various labor market outcomes of evacuees. When controls on the individual and family are included in it, it is estimated that Katrina lowered the labor force participation rate of the evacuees by 3.5%, while at the same time lowering the employment population ratio of the hard hit areas by 7.1% and the unemployment rate raised 6.3% (Brown and Patrick 2006, pp. 56-74). In the initial two months, the New Orleans’ metropolitan area employment payment declined by 35% while in the Louisiana state, the employment rate declined by 12% to the poor performance of the labor market. According to the United States of America’s 2006 statistics and labor bureau, the hardest hit areas experienced long ‘dry employment spell’ months due to lack of jobs, destroyed infrastructure, and constant in and out migration of people. In Mississippi’s Gulf Coast area which suffered massive damages, thanks to the impact of the Hurricane Katrina cyclone, 236 people were killed while 67 people were reported missing. The total damages in Mississippi were estimated to be $125 billion. Furthermore, the labor force participation rate was also lowered over the initial thirteen months.

In both New Orleans and Mississippi, businesses were greatly destroyed and people seriously devastated. In Mississippi alone, employment in Harrison, Hancock, and Jackson counties, employment rates declined by 9% to 14%before the end of the year 2005. The coast of Mississippi was hit with storm that had 30 foot surge. In all the hard hit areas, jobs, facilities, incomes, production, and business relationships were very severely disrupted. The major hit sectors and labor market areas include the housing market outlook, the gross domestic product of the affected states, the housing sector, and the mortgage market. This can be associated to the fact that the Hurricane Katrina in the hardest hit areas had a very negative impact on the consumer prices while the mortgage interest rates forced the actual prices of construction materials such as roofing tiles and plywood to increase. Kletzer (1998, pp. 36-87) explains that in Mississippi, the labor force participation experienced a fluctuating pattern as indicated in figure 1 below.

Fig 1: Labor Force Participation Trends in Mississippi

Fig 2: Employment Population Ratio in the hard hit regions

            Luciana’s damage was much concentrated in the city while New Orleans problems were worsened by the additional Hurricane Rita disaster that followed soon afterwards. 16920 businesses that were located in Louisiana’s damaged city were destroyed thus worsening the labor market situation in the city.

Fig 3:   Hard Hit Areas’ Unemployment Rates

The fact that that only specific sections of the identified areas were hard hit is evident from the results arrived at. For instance, New Orleans and the coastal strip of the Gulf coast seems to be the hardest hit hence the labor market is yet to regain its normal operations. High employment rates are therefore very evident in the area. When the sample is restricted to people’s age between 25 years to 64 years, the estimated negative impact of Hurricane Katrina increases. The magnitude of these impacts as a means’ percentage is very similar to the age restricted sample and the total sample of the selected states which includes Louisiana, Mississippi, and Alabama, among others. A similar finding was observed in the comparison of returnees and non-returnees when the sample was restricted to persons who were aged between 25 and 64 years. A detailed analysis of the earnings and the hours of all individuals indicate that Katrina reduced the number of hours worked by more than two hours (Dolfman, et al 2007, 5-17).

This explains why the trend observed for employment, the coefficient on the Treatit × Postit ×Timet variable actually indicates that the effect of Katrina on hours worked decreased over time. However, when the analysis is restricted to the employed people, the estimates of the coefficient indicates that evacuees worked for an average of 1.5 hours more week and earned even approximately $52 more per week after the storm. The migration into and out of the hard hit areas indicate that there exist no exact correspondence of the statistics especially for the individuals who are not classified as evacuees in the hard hit areas. However, the migration flows tend to be quite small and are relative to the number of such individuals who remained in the affected areas throughout the period spanning the Hurricane Katrina (Kletzer 1998, pp. 36-87).

Residents of the Non-hard hit areas
People in the hard hit areas
Returnees to their respective areas
Non returnees
Current labor force participation rate
Ration of employment
Current Unemployment rate
Average hours per week before the Cyclone
Hours for the workers
Weekly earning (Usual)
Workers earning
Table 1: Labor market comes in the hardest hit areas

The numbers of hours indicated in the table above are based on an individuals working hours on the main job.

For the sub-region of counties located in the affected area but outside the New Orleans MSA, the estimated effects of Katrina on pre-storm residents as a whole are close to zero, in contrast to the generally negative effects on the evacuees. The divergence between the estimates for evacuees and for all residents of affected area outside the New Orleans MSA is consistent with the low evacuation rate (16 percent) for this sub-region and suggests that the labor market outcomes of pre-storm residents (on average) in the sub-region were not negatively affected by the storm. The correlation between the damages caused by the dangerous Hurricane Katrina cyclone on the labor markets and that concerned with the area’s housing sector are very closely related and can therefore be best explained using the correlation below. In the regression, Damageit is the measure of the housing damage in the specific hard hit areas.

Yit =?t +?Xit + ?1 Damage­it + ?2 (Damage­it × Postit ) +?it

            Evidently from the research findings, deaths that occurred in Mississippi are much less than the overall deaths that occurred in the Louisiana State even though both areas were indeed hardly hit by the Hurricane Katrina which later led to loss of labor and ultimately decline in the rate of economic growth rate in the areas. Very few deaths were reported to have occurred in Alabama (Table 1 below) even the area suffered greater decline in the labor market.

Number of deaths reported
Table 1: Deaths by the Hard Hit States

The Hurricane Katrina had very adverse effects in certain areas compared to others. Areas such as New Orleans, Mississippi, and Louisiana City suffered the greatest negative effect of the Hurricane Katrina. The agency of the federal emergency issues and management (2005), through its post Hurricane Katrina survey elaborates on the fact that the resulting negative effects of the Hurricane Katrina led to total decline in the performance of the labor market. The above analysis clearly indicates that many people lost their jobs while business enterprises either had to totally close-up or relocate due to the fear of a reoccurrence of the same. Contrary to many schools of thought and perceptions created in the media, the evidence gathered clearly indicates that in Alabama, very few deaths were reported (only two people died). To the contrary, Louisiana City recorded the highest number of casualties with one thousand five hundred and seventy seven deaths being recorded (Kletzer 1998, pp. 36-87).

            Data collection and verification was the major challenge encountered in the term paper preparation. Though a lot of data and sources of information regarding the general impact of the Hurricane Katrina on the US and world labor markets does exist, the information that relates to the specific areas that were hardest hit such as Louisiana, Mississippi, and Alabama is scanty. The process of verifying the information on the term paper topic was also very tedious due to the many bureaucratic processes involved in getting access to the rightful sources of information and available data.


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