How can unemployment drop from 4.9 from 5.0 but lose 17,000 jobs?

How can unemployment drop from 4.9 from 5.0 but lose 17,000 jobs january 2008The national unemployment rate went down to 4.9 percent last month from 5 percent in December last year, based on statistics released Friday by the Labor Department.

Based on reports, the US economy lost 17,000 jobs in January, a decline in employment for the first time since August of 2003. This according to economists is another indication of economic trouble. The top decliners in employment are the construction and manufacturing sectors.

How can unemployment drop from 4.9 from 5.0 but lose 17,000 jobs?

Let%26#039;s suppose there are 1000 people in the labor force, 50 of whom are unemployed (but looking for a job) in December. So, the unemployment rate is 0.050 (or 5.0%.)

Now in January, 200 people%26#039;s jobs are lost, but they aren%26#039;t people that planned on working in January anyway, perhaps they were just working over Christmas to make some extra money, or any one of a thousand reasons, so these are 200 jobs lost, but the people are not counted in the labor force in January. Furthermore, over that time period, 18 of the 50 unemployed people found a new job, so there are only 32 unemployed people now, and 800 in the labor force. Now the unemployment rate is 32/800 = 0.04 or 4%.

Meanwhile, 200 jobs were lost, 18 were created, so there were still 182 jobs lost.

Unemployment went down, but more jobs were %26quot;lost%26quot; than %26quot;gained.%26quot;

This is an extreme example, but I think you get the point.

The unemployment rate measures the number of people who are currently out of work but are currently looking for work or would like to be working.

Before and around Christimas, a lot more people are looking/would like to be/are employed. After the holiday many of these people, for numerous reason, are no longer looking for work.

Unemployment rate = # of people without a job that want one / total size of the labor force.

If both change simultaneously, the net effect is not certain.

**** To elaborate on Hubris:

Some of it is discouraged workers, but a large portion of the labor force that leaves between December and January is people that would have left not because of discouragement, but just because they had no plans to continue working. A lot of retail jobs are Seasonal. Plan in advance to work 2 months out of the year, make some extra cash, and get out of the labor force because you don%26#039;t want to work anymore.

How can unemployment drop from 4.9 from 5.0 but lose 17,000 jobs?

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Two words: discouraged workers. To be considered unemployed you must meet two criteria: not have a job AND be actively seeking employment. If you have been looking for a job with no success for so long that you give up your search you are not considered unemployed. Rather, you have left the workforce.

Often times when the economy is really bad for a long time the unemployment rate will decline even though new jobs haven%26#039;t been created. During the Great Depression the official unemployment rate never climbed above 25% but the employment level, the number of people working, continued to decline after the 25% mark had been reached. Similarly, after a recession has ended and the economy has started to recover the unemployment rate often increases. This is because previously discouraged workers have rejoined the workforce and are again looking for jobs.|||This happens because the number of available workers grows constantly.