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Many have interpreted the slight drop in the national unemployment rate from 9.5 percent in June to 9.4 percent in July as yet another sign that the economy is improving. This interpretation is misleading.
The unemployment rate, as defined by the Bureau of Labor Statistics, measures the percentage of people in the civilian labor force who are without jobs, but who are currently available for work and have actively looked in the previous four weeks. A person who does not have a job, but who is not taking active steps to find one, is classified as being out of the labor force. In a prolonged recession such as this one, unemployed people are more likely to give up the job search. Because they drop out of the labor force, they are no longer considered unemployed.
| Change from June to July 2009 |
| Unemployment |
-267,000 |
| Employment |
-155,000 |
Labor force
|
-422,000 |
From June to July, as the table above shows, the number of unemployed people fell by 267,000. But the number of employed people also fell, by 155,000. The numbers suggest that rather than finding jobs, some of the unemployed simply stopped looking for work, which caused the total labor force to shrink.
As the July data shows, the unemployment rate alone should not be used an all-encompassing indicator of the state of the labor market. Unemployment might appear to decrease, even as deteriorating labor market situation causes some of the unemployed to stop looking for work.
The BLS is aware that the unemployment rate may underestimate the true number of people who are unable to find jobs. It collects data about discouraged workers, people who stopped looking for work because they believe there are no jobs for them. As the chart below shows, the number of discouraged workers usually increases as the unemployment rate rises. This number has been increasing sharply since August 2008.
Source: Bureau of labor Statistics, Current Population Survey. Latest data: July 2009. Discouraged workers series is not seasonally adjusted. (Click to enlarge chart.)
Discouraged workers are only a part of those marginally attached to the labor force. The BLS says that in July 2009, in addition to 796,000 discouraged workers, there were 1,486,000 people who wanted a job but did not look for one because of school or family responsibilities, health issues, or transportation problems.
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