The jobs market
Where are the workers?
Troubling trends behind the falling unemployment rate
Feb 10th 2011 | WASHINGTON, DC | From The Economist print edition
WHEN America’s job market isn’t disappointing, it’s perplexing. Take the month of January, when a net figure of just 36,000 non-farm jobs was created. Even by the miserly standards of the current recovery, that was low.
But in the same month the unemployment rate tumbled to a 21-month low of 9% from 9.4% in December. Its drop since November, when it was 9.8%, is the largest over two months since the prosperous days of 1958. Which of these bits of news gives the truer picture?
One reason that America’s jobs figures often send mixed signals is that they are drawn from two separate surveys. In this case, the survey of employer payrolls was almost certainly affected by snowstorms that ravaged much of the east of the country and which economists estimate may have kept 60,000 to 150,000 people away from work.
The survey of households, from which the unemployment rate is derived, tells a far more optimistic story. It finds that employment has surged by 882,000, or 0.6%, in the past two months, after adjusting for new estimates of America’s population. This is more in keeping with other data, such as car sales and GDP, which suggest that the recovery is picking up steam.
Yet for several reasons the fall in unemployment should not be taken as evidence of a job market on a roll. First, it was inexplicably high to start with. According to Okun’s law, an economic relationship that predicts how much unemployment will rise according to how GDP is doing, unemployment should be only about 8.5%, reckons Alan Krueger, a labour economist at Princeton University. So some of the latest drop may simply be an overdue statistical correction.
More troubling, unemployment in the past two years would have been even higher but for a disturbing lack of growth in the labour force: that is, the number of people either working...