Despite job gains, unemployment rates may remain high

Last Friday, our blog post discussed the March increase in nonfarm payroll employment by 162,000 nationwide. With more jobs available for the unemployed, we might naturally expect the unemployment rate to decline.

Not necessarily. . .

A Washington Post article this week highlights the reasons that jobless rates may remain steady or even increase as a result of rising payroll employment.

As more jobs are created, and people feel more optimistic about their prospects, those who had previously stopped looking for work (discouraged workers), or who began pursuing education or career training in place of job hunting, may choose to resume looking for work. The official definition of unemployment requires job seekers to be available and actively seeking work. When job hunting begins again, the job seeker counts as part of the labor force again.

So this can be counterintuitive: discontinuing a job hunt (and thus dropping out of the labor force) can deflate the unemployment rate, and rejoining the labor force by actively seeking work can drive up the unemployment rate, even when payroll employment rises.

The labor force rose by 200,000 people in March, while as previously mentioned, payroll employment gains totaled 162,000. Some economists predict that jobless rates may not fall to their pre-recession levels for nearly five years.