The February jobs report indicated that businesses created 257,000 jobs in January, but the unemployment rate increased to 5.7 percent. It seems odd that unemployment increased when so many jobs were created. This is an indicator that the jobs reports are not accurate.
The official unemployment rate increased in January mainly because people who had previously stopped looking for work started seeking work. In previous months the unemployment rate decreased when the unemployed stopped seeking work and were no longer considered in the labor force. The very low labor participation rate and stagnant wage growth are why the reality on the street does not match the promising jobs reports, and why many people feel like the recession never ended.
The unemployment rate is very dependent on a relatively small number people — the job seekers. In January there were 8,979,000 job seekers, or an increase of 291,000 over December 2014. More people seeking employment has the same affect as people losing their jobs. The number of unemployed increases because those new job seekers are reclassified as unemployed. They were jobless the previous month, but became unemployed by seeking a job. We should call the unemployment rate the unemployment rate of job seekers.
The total number of people in the work force is growing so businesses must create enough jobs to accommodate the increase in the work force to keep unemployment from rising. Last month 291,000 jobs were needed just to kept the unemployment rate level because of the expanding the labor force. The unemployment rate will go down only after enough jobs are created to accommodate the expanding labor force.
Each unemployment report contains additional information that put unemployment in context. In January, about 157 million people in the U.S. were employed or seeking a job out of a population of 249 million available for work. This equates to a low labor participation rate of 62.9 percent. That is 4.4 percent below its most recent peak of 67.3 percent in January through April 2000. The current unemployment of 5.7 percent at a low labor participation of 62.9 percent is much weaker than 5.7 percent unemployment with a high 67.3 percent labor participation rate.
In calculating unemployment, the jobs reports fail to distinguish part-time jobs from full-time jobs. This economy is producing more part-time jobs when people need full-time jobs. The jobs reports gives an inaccurate view of employment because part time jobs are counted the same as full-time jobs. The BLS U-6 “real” unemployment rate gives a truer picture of the under utilization of labor in the country, but it is often ignored by the media.
The official unemployment rate is not accurate enough to base government polices on or to gauge the effectiveness of current economic policies. The unemployment rate could be made more accurate with minor changes, and the media could do more to help voters get a more accurate view of employment in the country.
retired extension educator