The unemployment picture: Reading between the lines
The unemployment figures for March, released last Friday, were higher than expected by those basing their predictions on declining unemployment insurance claims. The number of employed workers went up by only 120,000, about half what was expected, leaving the unemployment rate steady at 8.2 percent, according to the Bureau of Labor Statistics. This contrasted with predictions of job growth in the vicinity of 200,000, which many based on the previous day’s news that initial unemployment insurance claims for the last week in March had gone down. Is there a contradiction here? Not really.
While unemployment insurance (UI) claims tend to move in the same direction as the unemployment rate, they don’t necessarily move in lock step. First of all, not everyone who loses or leaves a job is eligible for unemployment compensation. Eligibility varies according to the individual worker’s prior work experience, the nature of the job separation, and the industry he or she worked in. Some of this difference can be seen in how the overall unemployment rate differs from the unemployment rate for the insured employed—those who are in jobs covered by UI. The insured unemployment rate for the third week in March was 2.6 percent, compared with the overall rate of 8.2 percent. And the relationship between the two rates can vary by state. For example, of the nine states that had the highest insured unemployment rates in mid-March, ranging from 4 to 6 percent, only three of them (California, New Jersey, and Puerto Rico) had overall unemployment rates of 9 percent or more.
Another factor accounting for the seeming paradox is the composition of the unemployed. A large portion of the unemployed are people who were not looking for work previously. Some are workers who, for various reasons, had left the labor force and are now returning. Others are people who had never worked before and are now looking for jobs. Together, they made up nearly 37 percent of the unemployed in March. In addition, over 8 percent of the unemployed are people who voluntarily left their jobs and are looking for new ones. This last group has grown over the past year. Most of the job seekers in these three groups would not be eligible for UI.
The economy is growing enough to generate some new jobs, but not fast enough to cover everyone looking for work. Some of the unemployed have been looking for work for a long time, others are returning to or just entering the job market, while still others are confident enough to voluntarily leave an old job behind and look for another one. They aren’t all eligible for unemployment insurance, so we should not be content to look at UI claims and think the hard work of job generation is behind us.
Composition of Unemployment by Reason for Unemployment, In Percent
Source: Bureau of Labor Statistics, table A-11