Advancing a Free Society

Slow Recovery in US Employment?

Tuesday, May 11, 2010

The April US employment report gave mixed signals. The good news is that employment grew by 300,000, and the employment gain in March was revised upwards from 160,00 to 230,000. But in seeming contradiction, the unemployment rate also rose by two percentage points, from 9.7% to 9.9%. Which of these figures gives a better indication of the speed and breadth of the American recovery from a deep recession?

The employment figures are consistent with the solid growth of 3.2% in real GDP during the first quarter of 2010. Economists trust employment data more than unemployment datat since the latter is subjective, as unemployment figures depend on how many persons are actively looking for work. The unemployment rate excludes men and women who lost their jobs but have given up finding new ones. It also excludes potential new entrants to the labor market who would like to be employed, but are not actively looking for work since they do not expect to find anything. Such an explanation of the difference in the change in employment and the change in unemployment would suggest that the underemployment rate fell since the measure of underemployment includes people whose hours have been reduced, or who are working part-time because they cannot find full time work. Yet contrary to these expectations, the reported underemployment rate also increased, from 16.9% to 17.1%.

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