Unemployment: the Shrinking Denominator

Well, the new jobs numbers were released today: nonfarm payroll employment fell by 125,000 in June. At the same time, the unemployment rate fell from 9.7 to 9.5 percent.

Before the celebrations begin (“Recovery Summer is underway! The unemployment rate fell!”) recall that the rate only reflects those who are in the labor force. According to the Bureau of Labor Statistics, the workforce shrunk by 652,000 between May and June. In other words, 652,000 were sufficiently discouraged to stop searching for a job (to simplify a bit: the denominator is shrinking faster than the numerator).

If the overall picture is grim, it is particularly dismal for African Americans (15.4 percent unemployment) and Hispanics (12.4 percent unemployment).

Senate Republicans have become born again fiscal conservatives on the issue of unemployment, refusing to support an extension of benefits as they depart Washington for an extended July 4th holiday. One wonders if this is a strategic blunder. See Megan McArdle’s recent post on this and the lively comments it generated.

One thought on “Unemployment: the Shrinking Denominator

  1. This is a good point and largely correct, but I think we have to be careful about attributing all of the decline in labor force participation to “discouragement.” People leave the labor force for a lot of reasons, and it is hard to know from surveys what role discouragement plays

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