Can the unemployment rate fall even if fewer people are working?
·August 12, 2021
Yes
The unemployment rate is defined as the number of people looking for a job who cannot find work divided by the entire labor force. Importantly, the labor force includes those people with jobs plus those who actively searched for employment in the last 4 weeks. If someone who is unemployed stops looking for a job, they are no longer considered to be in the labor force, and the unemployment rate falls – both the number of unemployed and the labor force decline, but there is a bigger proportional decrease in the former than in the latter so the ratio decreases.
This fact brief is responsive to conversations such as this one.
Sources:
EconoFact How Weak is the Labor Market?
FRED (Federal Reserve Bank of St. Louis) Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force (U6RATE)
FRED (Federal Reserve Bank of St. Louis) Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force (U6RATE)
Federal Reserve Bank of St. Louis Unemployment Rate
Econofact is partnering with Gigafact–an initiative focused on countering misinformation and spreading facts.