The U.S. economy added 215,000 jobs in March, while the unemployment rate ticked up to 5.0 percent from February’s 4.9 percent.
The Bureau of Labor Statistics’ U-6, which measure labor underutilization, increased a tenth of a percent to to 9.8 percent. Making Sen$e’s even more comprehensive measurement, the Solman Scale U-7 — which includes anyone who says they want a job, no matter how long it’s been since they last looked, involuntary part-time workers and the officially unemployed — increased from 11.89 percent to 11.95 percent.
A glance at unemployment and labor-underutilization rates may therefore indicate that our economy is heading in the wrong direction.
But economists are calling it a solid jobs report. No, this is not an April Fools’ joke; economists aren’t trying to pull the wool over your eyes. Here’s what’s happening and why higher unemployment can be seen as, yes, a good thing.
“The unemployment rate can tick up for two reasons. One is weak jobs, and the other is more people coming back into the labor force,” said Nariman Behravesh, chief economist at IHS.
“It’s counterintuitive,” said economist Michael Madowitz of the left-leaning Center for American Progress. “But the unemployment rate is just a fraction.”
That fraction is the number of unemployed persons divided by the labor force, which is simply the number of employed people plus those who are actively looking for work.
Last month, the denominator swelled, with 396,000 people joining the labor force, continuing a six-month streak.
Such strong labor force growth is “a vote of confidence” said Behravesh. More people who have been sitting on the sidelines, waiting to jump back into the workforce, now believe that there are employment opportunities available to them.
“People who were discouraged are now saying, ‘It’s worth my time to start looking again,’” said said Madowitz. “That’s not something that you see if the economy isn’t getting healthy.”
But a growing labor force has another effect on the economy. With more people entering the labor force, there’s a large pool of available labor for employers to choose from. That large pool puts a downward pressure on wages, said Behravesh.
“There’s no compulsion for employers to raise wages,” said Behravesh, adding that it may take another six months to a year for wages to really begin rising.
But for now, economists can celebrate a little wage growth. In March, after a 2-cent decline in February, average hourly earnings increased by 7 cents.