How Can the Unemployment Rate Go Down if Jobs Are Still Lost?

Question: C-Span reports that in January, the unemployment rate declined by 0.3 percent, yet also that 20,000 jobs were lost. If jobs were lost how could the unemployment rate decline?

Paul Solman: Technically, it actually COULD — if the workforce shrank faster than the unemployment rate. The unemployment rate is roughly 10 percent, right? To make the numbers simple, let’s say that in a workforce of 100, that’s ten people unemployed. Now another gets fired. Unemployment rate rises to 11 percent, right? 11 out of 100? Not necessarily.

Suppose 3 of those original ten out of work are no longer officially counted as “unemployed.” Suppose one retired. Another went on disability. A third hasn’t been looking for work, and just passed the one year mark. In all three cases, they’re out of the workforce.

Result? Workforce of 97; eight unemployed (the original ten plus the fired one, minus the three dropped for the workforce). 8 of 97? Unemployment rate drops to 8.2 percent!

Okay, but that’s NOT what happened last month. The workforce DIDN’T shrink. So what the hell happened? Know what? No one knows. Or at least, no one I’ve found. And certainly not your humble correspondent.

The numbers come from two different surveys. One, which asks “establishments” (companies, governments) about the number of jobs they have tells us how many jobs have been lost or added. The other asks a huge sample of people in “households” if they’re working or not. Sometimes, the numbers don’t agree. As was the case in January. Makes you wonder about the reliability of all these statistics, doesn’t it?