Unemployment Drops?

Nonfarm payrolls fell by just 11,000 last month, slowing down from a downwardly revised 111,000 drop seen in October, as the recovery encouraged some companies to retain workers, the Labor Department said Friday.

But, if the total number of unemployed actually increased, how can the unemployment rate actually drop?

Well, according to the people who actually track the unemployment rate (my hero, the BLS), the unemployment rate is the number of unemployed person's divided by the labor force.

So how can the number of unemployed increase while the rate goes down?

Here is the definition of an employed person:

Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.

And here is the definition of an unemployed person:

Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

And here is why I think the unemployment rate went down:

Discouraged workers (Current Population Survey)
Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

If the number of discouraged workers increases at a faster rate than actual job losses, the unemployment rate will go down. I.E. if the number of people who were laid off in Nov 2008 is higher than the number of people who have been laid off in Nov 2009, the unemployment rate will decrease.

Here is the full press release from the BLS.

A broader measure of unemployment, U-6, counts discouraged workers and those marginally employed. It stands at 17.2%. This is actually down from 17.5%.

So, maybe the economy is creating jobs and this is more than just a statistical recovery. In any event, more will have to be seen before you can call this a trend.

Maybe this video will clear things up: