October 3, 2014, 11:22 AM ET
Behind the U.S. Jobless Rate: More Job Gains Than Dropouts
By Josh Zumbrun
As close fans of the monthly jobs report know, the unemployment rate can decline for two different reasons, broadly speaking: Either unemployed people find jobs and employment rises, or unemployed people give up entirely on the labor force and thus are excluded from the calculation.
The first change — people finding jobs — is typically good news, while the second — people dropping out — is typically bad. Today’s report was more good news than bad news, with a 232,000 person gain in employment and a 97,000 person decline in the labor force. (Note that there are two different employment surveys — one of households, one of establishments — that tell slightly different stories. The numbers in this post come from the household survey, which is used to calculate the unemployment rate.)
“The drop was mostly for the right reasons,” said Michelle Girard, an economist at RBS Securities in a note. “But the magnitude of the move continues to be exaggerated by the underperformance of the labor force.”
The economy has been plagued by a declining labor force in recent years. While part of this is due to the fact that the massive baby boom generation is reaching retirement age, the decline also includes people who have become too discouraged by the weak labor market to continue hunting for jobs. If the labor market were strong enough, some economists believe that many of these dropouts would return to the job market.
Therefore, the best monthly jobs reports are those in which the labor force rises and employment rises by even more. The worst are those in which the labor force falls, and employment falls even more.
Today’s report still had labor force dropouts. But mostly, it had job gains.
The first change — people finding jobs — is typically good news, while the second — people dropping out — is typically bad. Today’s report was more good news than bad news, with a 232,000 person gain in employment and a 97,000 person decline in the labor force. (Note that there are two different employment surveys — one of households, one of establishments — that tell slightly different stories. The numbers in this post come from the household survey, which is used to calculate the unemployment rate.)
The economy has been plagued by a declining labor force in recent years. While part of this is due to the fact that the massive baby boom generation is reaching retirement age, the decline also includes people who have become too discouraged by the weak labor market to continue hunting for jobs. If the labor market were strong enough, some economists believe that many of these dropouts would return to the job market.
Therefore, the best monthly jobs reports are those in which the labor force rises and employment rises by even more. The worst are those in which the labor force falls, and employment falls even more.
Today’s report still had labor force dropouts. But mostly, it had job gains.
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