There is no irony in data. Except if you put two graphs side by side that tell the same but different story.
The April employment data was released on Friday by the Bureau of Labor Statistics, which is part of the U.S. Department of Labor, which, of course, is part of the U.S. Federal Government. The BLS paired these two graphs together. Chart 1 shows the civilian labor force unemployment rate from April 2010 through April 2012. Chart 2 shows the growth (or not) of nonfarm payroll employment in the same time frame.
Given this data, it’s a little hard to understand why the unemployment rate went down .1 point to 8.1% during a month when far fewer jobs were created than in the previous 6 months.
During the slow crawl out of the Recession, many economists and pundits positioned that for the unemployment rate to hold steady month over month, a minimum of 150,000 new jobs would need to be created in that month. And yet the data show that in a month when only 115,000 new jobs were created and the number of employed people was down 169,000, the unemployment rate still went down. How does that math work?
Here’s the chart that makes sense of it all direct from the BLS Employment Situation Report:
The civilian labor force actually decreased from March to April by 342,000; the number of employed people decreased 169,000; the number of unemployed people (still looking for work) dropped by 173,000; and the number of people not in the labor force grew by 522,000. What we can’t tell is how many of the unemployed became discouraged and stopped looking for work. They drop out of all calculations.
If we do the math, the lower unemployment rates over the last several months are not the result of job growth, but rather a shrinking civilian labor force and a decrease in the labor force participation rate.
While the numbers of the unemployed – that’s people unemployed and actively looking for work – appear to be shrinking, the numbers of people “not in the labor force” is growing. And growing rapidly – by nearly 3 million in the last year alone. We can’t tell from this data whether the rapidly growing number of people not in the labor force are Baby Boomers retiring (that wouldn’t be totally unexpected) or more discouraged unemployed people dropping out of the job search. But it’s a safe bet that it isn’t entirely people – Boomers or otherwise – voluntarily leaving the workforce.
So. The number of discouraged unemployed workers grows at the same time the number of participants in the labor force is decreasing. And that results in a lower unemployment rate. Maybe data is ironic after all.
How’s this scenario? What happens when the economy and the job market really improve and the discouraged unemployed workers re-enter the job market? Under this math, the unemployment rate could very well go up. The more workers are in the workforce — either employed or actively looking for work — the higher the number of jobs we’ll need to create to keep the unemployment percentage even.
Bottom line: the lowering unemployment rate isn’t about more workers going back to work at all. It’s about more workers leaving the economy. Really.
16 responses to “Data Point # 10: The Unemployment Rate Went Down? Really?”
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Hello Mz. Gorman,
This is a really great piece you have written. I am Justin Lee, SEO team, Joblisting Singapore.
I was going through articles in the field of HR to see what the industry was like and I have just come across your blog. I think its just awesome. Are we really so lame that the departments come up with data that has no grounds. The numbers game they play.
I went through the Data Point 8 and 9 articles also just now – pretty cool stuff . You have for sure.
oh the numbers game they play. Thinking we are all stupid. They have no respect for us
I don’t know that they think we’re stupid, rather, I think that it was inconcievable to the folks who set up these survey parameters that we’d be facing the kind of workforce demographic and economic dynamics that we’re facing today. Who would have thought that a downward moving unemployment rate would be caused by people leaving the workforce rather than by people going back to work?
China, that’s a great look into the numbers. But, it’s even weirder than you suggest. Historically, the unemployment rate and the number of job openings have had an inverse relationship. When the unemployment rate was up, the number of openings was down. When there were more openings, the unemployment rate fell.
That relationship broke at the start of the latest recession (see http://www.hrexaminer.com/17176 ). Today, the number of job openings has returned to pre-recession levels while the unemployment rate (even with the factors you describe) remains persistently high.
Part of what is happening is a dramatic skills shortage. This week, I went to a gathering of recruiters and CEOs in Silicon Valley. There are very troubling labor shortages in key disciplines.
That suggests that there are serios\us regional differences. Science and tech talent (who mostly live on the coasts) are in high demand. 20th Century skills (which dominate the country’s middle) are not so necessary.
The other part of what we’re seeing is that the number of new entrants to the workforce is in decline. That’s because the birth rate has fallen. As the country’s average age rises, the number of new workers shrinks. This, too varies by city.
It’s also really useful to note that the unemployment rate for college educated workers remains very low while the rest of the population (about 75% of Americans) has a rate far above the national numbers. This dynamic really varies by city.
The numbers are contradictory, in part, because the national lens isn’t the best way to understand the problem.
John: you’re the master at this kind of analysis, that’s for sure. Thanks for the further deep dive. In my personal mission to help HR professionals get comfortable with data and use it to build business cases for action, it’s being fun to new sources and new data points. I bow to the master, however. 🙂
Essentially they are dropping off unemployment eligibility and our system fails to track the try number of unemployed. And that doesn’t count the number of underemployed workers who are taking huge cuts just to pay bills
It’s interesting to see who is counted when… But it’s a good lesson in the need to look under the hood when the data looks too good to be true…
Reblogged this on InspiredWeightloss!.
Thanks for reposting and giving me credit. Love your site.
Thanks so much China!
You’re welcome! Thanks for coming back.
China, I really enjoy it when you break down numbers like this; it helps make sense out of the seemingly conflicting numbers we hear spouted across news outlets.
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