True or false: Labor shortages and high unemployment rates can exist at the same time.

True — and surprisingly, it can be a sign of a recovering labor force.

Colorado’s unemployment rate in November reached 4.3% — higher than 32 other states, but still well within what economists consider to be full employment.

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While the number might not be high enough to raise any major red flags, its slow increase over three years — in addition to accompanying employment data reliability issues — has caught the attention of some economists.

The Colorado Department of Labor and Unemployment reported in December that the state’s unemployment rate had gone up for the eighth time that year — even surpassing the national unemployment rate for the first time since 2021.

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In exactly one year, the state’s unemployment rate had risen from 3.3% in November 2023 to 4.3% in November 2024, significantly more than the average change of under 0.3% over one year in the United States. Colorado’s unemployment percentage increase was the third-highest in the country, below South Carolina and Rhode Island.

Although Colorado’s unemployment rate, on paper, has grown steadily since August 2022, the numbers don’t always give a good picture of the trends behind it.

“We have seen an upward trend in the unemployment rate, but we also have seen Colorado’s labor force grow at record levels,” said Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business at the University of Colorado Boulder.

Colorado added roughly 49,000 nonfarm jobs in 2024. September data from the Department of Labor and Employment reported the creation of 13,800 nonfarm jobs — higher than the 5,200 jobs lost in November.

The state had the fourth-highest labor participation rate in the country. In addition to being higher than the 62.5% national average, the share of Coloradans in the force has remained unchanged for seven consecutive months at 67.9%.

“What that means is, we have a higher percentage of population 16 and over that has opted into the labor force than almost any other state. And we’ve consistently been high so being fourth highest is not something new for us,” Lewandowski said.

One of the reasons behind the state’s leading labor force participation is its younger population compared with the national average. Lewandowski speculates another reason could be that the comparatively high cost of living has created a need for dual-income families or for members of a household to hold more than one job to make ends meet.

When putting together Colorado’s high labor force participation, younger population and net-positive job creation, it might not seem likely that the state would be experiencing a labor shortage — and yet, that is what the U.S. Chamber of Commerce reports.

Although the numbers may seem contradictory, they actually point to a recovering economy as more people re-enter the workforce, Lewandowski said.

Local Area Unemployment Statistics show that 31 states saw an increase in the unemployment rate, while all 50 states saw an increase in employment. 

“This isn’t the Colorado phenomenon,” Lewandowski said. “We’re seeing a rising unemployment rate at the same time seeing rising employment across the country.”

National data shows a growing number of job seekers who had stopped looking for jobs during the pandemic and are now actively seeking employment again. Paired with new adults and new residents looking for employment, the trends suggest the paradox is a matter of Colorado’s labor force growing at a faster rate than people can find jobs.

“It shows that it’s not a business strain or a weak business environment where businesses no longer need as many workers because they’re signaling through job openings that they do need workers,” Lewandowski said. “I find comfort in that, that it doesn’t illustrate a weakening business environment.”

One explanation for the contradictory figures simply has to do with timing. As large groups of people enter the labor market, they may not have a job right away; meaning there’s a period where recent graduates, new residents and others entering the workforce are still searching for jobs and thus are considered unemployed. This naturally raises the unemployment rate, even though many of them haven’t been searching for a job for very long.

“When we take a look at GDP growth, income growth, industry growth, continued employment growth, like taking a look at a basket of economic metrics, I don’t think it suggests a great deterioration of the Colorado economy,” Lewandowski said. “I think what we’re looking at right now is slower growth than where we have been, but it doesn’t necessarily mean slow growth.”

At the same time, a combination of job creation and people leaving the workforce can lead to labor shortages. Especially since the pandemic, common reasons for leaving the labor force can include early retirement, parents leaving jobs due to childcare issues or even becoming discouraged after long periods of job hunting.

“We can actually look at what’s going on in other states too, and we see growing employment and also increasing unemployment rates in those states, which I think does suggest that it’s just these dynamics of a growing labor force,” Lewandowski said.

For now, Colorado’s 4.3% unemployment rate isn’t a concern to Lewandowski’s team, but rather something to keep an eye on.

“I think once you start to approach 5% that’s to me, that’s a more concerning number,” he said. “I think given the dynamics that we’re looking at right now, where we continue to see job growth, we continue to see a growing labor force, and we continue to see demand for workers, I sort of count that all as positive.”

The Leeds School of Business projects Colorado’s unemployment rate will continue to climb in 2025, as well as its labor force. The data for December 2024 — released on Jan. 27, 2025 — already shows the state’s unemployment rose to 4.4%, while the national unemployment rate dropped to 4.1%.

Employment in Colorado is estimated to have increased by 1.6%, or 46,800 jobs, in 2024, according to the Leeds School of Business 2025 Colorado Business Economic Outlook report. Colorado will sustain job growth in 2025 at a more modest pace, increasing by another 36,700 jobs (1.2%) according to report estimates, with 10 of Colorado’s 11 major industries expected to add jobs.

“Our general take is that the economy is poised for continued growth, and that’s nationally and in Colorado,” Lewandowski said. “But I think there is an air of uncertainty when it comes to policy … (such as) what’s been thrown around in terms of tariffs.”

A margin of error: U.S. Bureau warns of Colorado’s unreliable employment data

It’s important to note that Colorado has faced challenges in accurately reporting employment data for the past few months, meaning the figures may not be reliable for all uses.

In December 2024, the U.S. Bureau of Labor Statistics reported that it had observed data quality problems with Colorado unemployment figures stemming from an overhaul of the state’s unemployment insurance premiums system. These data quality issues resulted in the bureau suspending the publishing of 2025 labor force and unemployment data for Colorado, including revisions to estimates for 2024. 

Starting Nov. 20, 2024, the bureau also stopped sharing detailed job data by industry and region in Colorado, but has still released statewide totals.

Lewandowski said his team has been relying mostly on the Current Employment Statistics data — which is still impacted by the Quarterly Census of Employment and Wages reporting issues — for their forecasting. However, they now take those figures with a grain of salt.

“If we look at Colorado’s 4.2% and a neighboring state has an unemployment rate of 4%, I don’t necessarily look at those as materially different. They may not even be statistically different because of the sample size,” Lewandowski said.

“If we’re talking about an unemployment rate of 4.2% or 4.1%, they report what the margin of error is on those unemployment rates. So I’m like, ‘Well, is it really different if it’s 4.2 or 4.1 or 4.0? There’s enough of a margin of error there that I can’t say that they’re statistically different,” he added.

The Bureau of Labor Statistics and the Colorado Department of Labor and Employment have not agreed to a timeline for resolution, making it unclear what will happen with 2025 reports.