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The Pitfalls of Unemployment Rate in Judging Job Growth
In Wisconsin the Bureau of Labor Statistics has reported month after month job losses.
At the same time, the unemployment rate in Wisconsin has been shown to have declined. Intuitively it would appear that when unemployment rate declines there more are people working; that is not necessarily true. This is so because of the method used for calculation of the unemployment rate by the Bureau of Labor Statistics. The important denominator in deriving this figure is the labor force, which consists of the number of people working + the number of people actively looking for work. In other words, people who are unemployed but not looking for work, often referred to as discouraged workers, are not counted in the labor force; when such occurs the denominator is smaller, the employment rate = (people employed ÷ labor force) x 100 seems higher, and the unemployment rate which is 100 - employment rate is smaller.
These derivations can be easily verified. See link http://www.bls.gov/cps/cps_htgm.htm in particular, questions 5 & 6. The opening sentence of the answer to question 5 states “Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.” Line 4 of question 6 states: “..those who have no job and are not looking for one are counted as "not in the labor force." It is mathematically impossible to have job losses and a declining unemployment rate except by a shrinking labor force.
In summary, in states where there are job losses and a declining employment rate it simply means there are less people looking for work and cannot mean more people are employed.
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