Monday, May 9, 2011

Unemployment Rate Blues

For the past three years, the U S economy has struggled with the “Great Recession.” Aside from the near collapse of our financial system, the most devastating part of the economy has been the loss of jobs. At one time, the economy was losing over five hundred thousand (500,000) jobs per month. The jobless unemployment rate rose to above ten (10%) per cent at one point.

This Friday the Labor Department will be reporting the number of jobs gained in April 2011. It is expected that the jobs number will increase by over two hundred thousand (200,000) jobs but the unemployment rate may rise to 8.9 per cent! How do we increase jobs but the unemployment rate not only does not fall but actually increases???

This is one of the tricky elements of our economic system and the way that unemployment is reported. The unemployment rate measures the percentage of people who are looking for work but who can’t find jobs. As our economy and its multiple parts change with each month, the number of people looking for work vacillates.

Therefore, as the number of jobs increase, more people who have been discouraged and have stopped looking for employment start to feel better about the job market and re-enter the employment pool as they start looking for work again. This means the economy can create jobs, give people hope, get more people looking for work, and the result is that the unemployment rate goes up!

So beware of the unemployment rate. It has a tricky side. It may not reflect the number of those out of work but rather those who have started looking for work again.

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