On the arithmetic of unemployment

Glenn Reynolds of Instapundit writes:

JOBLESS RATE RISES TO 9.9%. UNEXPECTEDLY! But the spin is positive:

Employers added 290,000 jobs in April, the Labor Department said on Friday. It revised figures for February and March to show 121,000 more jobs were added than previously thought. The unemployment rate, however, rose to 9.9 percent as the size of the labor force increased. . . . Analysts polled by Reuters had expected nonfarm payrolls to rise 200,000 last month and the jobless rate to remain unchanged at 9.7 percent.

All the economic news is good, it’s just that unemployment is up. . . . .

I hate spin as much as the next guy, but this is simple arithmetic. The unemployment rate is calculated by taking the number of unemployed and dividing by the labor force (those working and actively looking for work). The unemployment rate rises when the number of unemployed workers increases. Such increases can occur when individuals who do not have jobs re-enter the labor force or when individuals lose their jobs. Given that the labor force increased by 800,000 workers last month — the largest increase since 1983 — there is substantial reason to believe that the unemployment rate rose as a result of re-entrants and is not a reflection of bad news.

Correspondingly, a much better indicator at turning points is aggregate hours because it can provide additional information about the direction of employment. Below is a graph of the aggregate hours index, calculated by the BLS, for the last year.

While aggregate hours are still below the base year (2002), they have been increasing since late 2009. In other words, employment is increasing. The numbers aren’t being spun.

3 responses to “On the arithmetic of unemployment

  1. Ao how can unemployment be stopped? I know and you should know too. By increasing demand for consumer goods more people will need employment to make and distribute them. The demand will grow if prices and costs were lower. To reduce production costs we need cheaper land since the other two factors in production labour and durable capital goods are both non-elidgable for usefull earnings and hire reductions.

    So land is where the cost of access can be lessened and this by applying a tax to land values instead of on incomes.

  2. It’s Nice Post, keep posting and have a nice day… 09:05

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