The Bad News Behind Today’s Good Unemployment Rate

The news out today shows a big drop in the unemployment rate from last month, down from 5.0 to 4.7 percent last month.  That sounds great, a big move, and the number of unemployed declined by almost half a million. But the number of people with jobs is up only up by 38,000 while the “civilian, non-institutional population” is up by 200,000.  How could that be?

Because the unemployment rate only measures that percentage of people who are in the labor force who are actively searching for a job.  If you give up searching, you aren’t counted as being unemployed.  The number of people not in the labor force grew by about 550,000 this past month.  That’s what brought the number of unemployed and the unemployment rate down.  Some of those are retiring, but some just gave up looking for a job as the number of those who say they want a job grew by more than 100,000.

At the same time, the number of people working part-time who wanted full-time work rose by 470,000.  They didn’t find new part-time jobs. Their hours were cut back.

We shouldn’t pay a lot of attention to changes over one month in the unemployment rate as the numbers bounce around a bit for reasons that have nothing to do with long-run trends.  We shouldn’t pay as much attention to the unemployment rate as to other measures, especially the number of new jobs being created.

This month is a good example:  The apparent good news in unemployment rate is undercut by the reality of lousy news in the form of very slow job growth, frustrated job seekers, and workers who have been pushed into part-time work.

Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School of the University of Pennsylvania and director of Wharton’s Center for Human Resources. He is the author of Will College Pay Off? A Guide to the Most Important Financial Decision You’ll Ever Make.

Originally posted on Linked IN by: 

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Posted on June 6, 2016, in Uncategorized. Bookmark the permalink. Leave a comment.

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