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Understanding the Unemployment Rate

Why April had both good and bad news

There's sometimes a paradox tucked into the unemployment figures that the government reports each month: Employers add a solid number of jobs to their payrolls, and yet the unemployment rate goes up. Why does this happen?

See also: More jobs added in April.

Sometimes there's a simple explanation. People who were discouraged and had given up looking for work — and therefore weren't counted as unemployed — are trying again, believing the economy's looking better. But until they do find work, they will be counted as jobless. That pushes the unemployment rate up.

Other times, the explanation is more complex, having to do with the government's methods of monitoring employment.

The Bureau of Labor Statistics has no way to know the precise work situation of every American employer and citizen. So it produces statistical estimates based on two large and elaborate surveys:

  • About 140,000 employers are each month asked a series of questions about their payrolls.

  • About 60,000 American households are polled about the job status of people living there.

The results are then extrapolated to produce national numbers. But the science can be inexact, even with modern sampling techniques meant to weed out inaccuracies.

Plus, the two surveys measure a very complex situation in different ways, one from the employer’s vantage point, the other from the worker’s. The creation of a job doesn't always put an unemployed person to work — an already working person might take a second job. Over the long term, the trends in the two surveys track one another, but sometimes month to month they don't.

That's what happened in the April numbers.

The survey of employers found that they had added 244,000 jobs, cause for optimism that the recovery was continuing, if slowly. This survey often draws more attention than the other one as a sign of hiring trends.

But the household survey found that about 190,000 fewer people were working in April than in March. It also concluded that the labor force (the employed plus employment hopefuls) had grown by about 15,000, some of them likely people resuming suspended searches for a paycheck.

The simple math is that fewer people working and a larger labor force equals a higher unemployment rate. In April's case, it added up to an upward bump of 0.2 percentage point to 9.0 percent.

John Burgess is an associate editor at the AARP Bulletin.

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