Monday, March 12, 2012

More Jobs but the Unemployment Rate Stayed the Same?

If We Have More Jobs, how can the Unemployment Rate Stay the Same?  Can It Actually Go Up?

How did that happen?

Several people have not understood this, so I thought I'd explain it.

First of all, the jobs numbers come from a different source than the report that gives us the unemployment rate.  Over time, these two sources are very close, but in any one month, one may be up and the other down or vice versa.

Actually in February, both the number of jobs went up and the number of people who report themselves as employed.  But that's not why the unemployment rate remained the same:

The Unemployment Rate is a Fraction. 

If you recall, a fraction has a denominator, the bigger number on the bottom, and a numerator, the smaller number on top.  The unemployment rate is still at 8.3% (8.3  over 100) even with more people working because the civilian labor force (the denominator in the unemployment equation) also got larger.  About 470,000 people ENTERED the civilian labor force by either working or looking for work. About 430,000 MORE people reported themselves as working in February and about 50,000 MORE people reported themselves as unemployed (which means that they are actively looking for work). The numerator in the unemployed equation is the number of unemployed. 

So if you have a fraction and both the numerator and the denominator increase, the fraction may well stay the same.. or even increase.

Again, remember that the jobs number comes from a different source than the employment/unemployment numbers.  Also, the seasonal adjustment factors appear to be different for the jobs numbers (CES) vs. the employment numbers (CPS).  As I said above, in any given month, the number of people employed can go up while the number of jobs can go down, so comparing one month to the next doesn't necessarily tell you that much.  But over time, the increase (or decrease) in jobs is very close to the increase (or decrease) in the number of people employed.  But for any given month, the number of employed can go down while the number of jobs goes up.  This might also create a situation in which the unemployment rate goes up while the number of jobs also goes up.   

12,758,000 (the active unemployed) divided by 154,395,000 (the civilian labor force, which is composed of the unemployed plus the employed.) equals:  8.26% or 8.3%  
12,806,000 (the active unemployed) divided by 154,871,000 (the civilian labor force) equals:  8.27% or 8.3% 

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