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Be smart about unemployment rates

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Just a word about the news that some unemployment rates have gone up.

When you see a reported rate, remember that it is the percentage of people active in the job market that cannot find a full-time job. As noted in this explainer at Investopedia:

… An unemployed person is not currently working but is available to work and has actively looked for work at some point during the prior four weeks. The “civilian labor force” is the sum of all employed and unemployed people. A person who has no job and has not looked for a job in the last four weeks is not technically an unemployed person and is not included in the labor force.

So, there are TWO factors in the unemployment rate:

  • The number of people available to work
  • The number of people working

If the labor force (the number of people available to work) stays steady, and the number of people actually working goes down, the unemployment rate goes up. BUT, the unemployment rate ALSO goes up if the number of people working stays the same, but more people are in the labor force.

How can you tell which situation is causing the change by looking at the number? You can’t. The only way to know is to read the context around the number. In this Insider Louisville story (login required), they note that the number of jobs went up, but the labor force went up faster, so the overall unemployment rate went up.

Bottom line: Be a smart user of statistics. <g>



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