January 12 2011

Some states have been better than others at chipping away at their high unemployment rates. Here are five that have helped put their residents back to work.

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Unfortunately for millions of unemployed Americans, the forecast for the job market doesn't look much brighter for 2011. For 20 straight months, unemployment has stood above 9% and Fed chairman Ben Bernanke said last week it could take "four or five more years for the job market to normalize."

While the latest jobs report released last week showed that the unemployment rate fell slightly to 9.4% in December from 9.8% the previous month, the news conjured little cheer as the economy added fewer jobs than most economists expected. The drop occurred not because more workers found jobs but rather because fewer people continue to actively look for work.

But it's worth looking at the bright side. Some states that saw unemployment peak well above the national average have seen joblessness drop at a faster pace than the rest of the country in the past year.

Fortune takes a look at five of the most improved jobless rates during the past year and what makes them so extraordinary.

Tennessee:
Tennessee Unemployment rate : 9.4%
Year over year drop: 1.3%

During tough economic times, it seems there's no stopping the entrepreneurial spirit of Tennesseans. The nation's 17th largest state by population saw its unemployment rate fall substantially over the past year.

While companies struggled to add jobs, many Tennesseans took it upon themselves to find work on their own -- either by starting their own businesses, picking up freelance work or offering their own services from lawn maintenance to home repair, says William Fox, economics professor at the University of Tennessee.

"It doesn't appear that businesses were hiring much," Fox says, citing difference between the business survey and the separate household survey used to calculate the unemployment rate. The household survey showed that the labor force grew by 2.3% and employment rose by 3.8% over the past year, while the business survey showed only a 1% jump in employment.

The difference suggests that while businesses aren't exactly hiring more, workers have nevertheless found work. Way to pull yourself up by your bootstraps, Tennessee.

NEXT: Washington, DC

Unemployment rate : 9.6%
Year over year drop: 1.8%
It's not exactly a state and its services-based economy is unlike many parts of the country, but the District of Columbia saw big declines in its unemployment rate this past year.

Economists say the drop reflects a real decline in joblessness and not merely an influx of the long-term unemployed who have stopped looking for work. Indeed, our nation's capital fared better than the rest of the country during the recession and has recovered faster as well. Just prior to the recession in mid-2008, payrolls peaked at 710,000. By the end of 2009, they fell to 700,000 but have since recovered to close to 725,000 jobs.

Sara Kline, an economist at Moody's Analytics, says the nation's capital naturally enjoyed a federal boost in spending. But the DC job market isn't altogether rosy. Recently there's been a jump in discouraged workers and those working part-time but want full-time employment.

Overall, however, the numbers show a genuine rebound in the economy, Kline says. The economy has not only added government jobs but also private sector jobs -- mostly professional and business services tied closely to federal contracting.



NEXT: Alabama

Unemployment rate : 9%
Year over year drop: 1.9%
Alabama's auto industry took a major hit during the recession, with mass layoffs helping push the unemployment rate to a peak of more than 11% in early 2010. But the industry has seen a relatively modest rebound as the global economy slowly recovers, helping reduce the state's unemployment rate by 1.9% from November 2009.

Production at the state's three major auto plants, Hyundai, Honda and Mercedes-Benz, has risen considerably. Sales for the entire Alabama-made Hyundai line were up 33% in December and 24% for the year. The Alabama-made Honda line saw a 25.5% increase. In August, Mercedes-Benz announced plans to hire more than 400 temporary employees at its Vance, Ala. auto factory.

While a 9% unemployment rate is still high, it's nevertheless a marked improvement. Besides the auto industry, a rebound in the state's services industries, particularly leisure and hospitality, have helped bring joblessness down. Alabama added 4,800 jobs to these sectors over the previous year.

Alabama is still a long way from its 2.7% unemployment rate from 2007. To get there, it will need to create more jobs outside of the auto industry.



NEXT: New Hampshire

Unemployment rate : 5.4%
Year over year drop: 1.5%
Not only does New Hampshire currently have one of the nation's lowest unemployment rates, but the state has seen some of the biggest reductions in joblessness this past year. Unemployment dropped by 1.5% to 5.4% in November from nearly 7% the same time last year.

It may not be all that surprising that the New England state known to tourists as a winter playground for skiing and other recreation would fare better than the rest of the country. New Hampshire doesn't have a state income or sales tax, and the allure of its tax benefits has drawn new industries and companies. What's more, the state reinstated the New Hampshire Job Training Fund in 2007, partnering with companies to train more than 8,000 workers in new skills.

In his inaugural address last week, New Hampshire Gov. John Lynch noted that, "The Federal Reserve Bank says New Hampshire had the fastest economic growth of any state in the nation in the past year, and predicts we will lead the country in economic growth in the coming year. The National Journal calls New Hampshire the highest-performing economy in the nation."

Hats off to you, New Hampshire. Brace yourselves for an influx of unemployed out-of-staters.

NEXT: Illinois

Unemployment rate : 9.2%
Year over year drop: 1.3%
The nation's fifth most populous state does have a relatively high unemployment rate at 9.6%, but public infrastructure projects have helped reduce it from a much higher 11% a year earlier.

In 2009, the state passed a $31 billion state bond measure to finance public works projects including improvements to O'Hare International Airport. According to a study by Southern Illinois University the spending will create 535,000 new full-time jobs over six years and more than $2.9 billion in state and local tax revenues.

As for recovery of construction jobs in Illinois, much of this will depend upon continued government investments in infrastructure projects. Doug Whitley, CEO of the Illinois Chamber of Commerce, says he expects to see a continuation of these dollars flowing to state and local projects this year.

An innovative bright spot in Illinois lies in their planned "green" projects such as the University of Illinois' proposal to build up to three 400-foot wind turbines.