There Are 227,000 New Jobs—Why Isn't Unemployment Going Down?

Posted by Tim Fernholz

February marked the third month in a row with a significant uptick in employment in the United States. The economy added some 227,000 jobs last month, and new data shows that employment expanded more in December and January than we had thought.

As far as trends go, it’s probably the best-looking three months of economic news we’ve had in years. Yet unemployment remains stuck at 8.3 percent. What’s the deal?

When the government measures unemployment, they do it as a ratio—how many people are trying to find jobs compared to how many people are in the total workforce. If you’re not trying to find a job—say you’re retired or a student—you’re not counted in the workforce.  When labor markets are tough, as they have been recently, many people become so discouraged at their inability to find a job that they drop out of the workforce entirely.

Things have been bad enough lately that the number of people in the workforce has been dropping, but this month we saw the first uptick in a while—less than a percent increase, but still a bump. That suggests we’re seeing more people returning to the job market because they perceive more opportunities becoming available—that’s actually a very good thing, even if it means it’ll take longer for the top-line "unemployment rate" number to come down.

A better measure of unemployment is the "U-6" number, a measurement not just of unemployed people, but also those who have stopped looking for jobs because they can’t find them and people who are forced to work part-time because they can’t find a full-time job—basically, all the ways people can feel the pain from a lack of available work. The U-6 number is down to 14.9 percent, the lowest it’s been since 2009.

Yet there are still far more people suffering now than before 2009, when the U-6 measurement hovered well below 10 percent for several years. That’s an indicator of the massive gap we still need to fill before our economy will support everyone who wants to work for a living.

Economists estimate that at the current rate, we won’t reach the level of employment we saw before the crisis until 2018 or 2020. That’s not good enough—though it looks like we’re finally on a track to a real recovery (absent a disaster in Europe), we shouldn’t get complacent. That means holding politicians' feet to the fire so they don't damage the recovery with big, immediate spending reductions or more cuts to public jobs.

One particularly good sign in this report was that teacher hiring at the local and state level is finally starting to increase after years of steady reductions in public employees. If state and local governments, which have been hemorrhaging jobs while the private sector has grown steadily, can begin hiring new workers, that will mark a major shift into the post-recession world.

Chart courtesy of Calculated Risk