According to the Bureau of Labor Statistics, in June 2010 employment declined by 125,000 workers while at the same time the unemployment rate declined to 9.5%. How is it possible for the unemployment rate to drop when there are fewer people working?
Unemployment rate (UR) = Number of people unemployed (U) / Labor force (LF), where LF = U + Number of people employed
UR can decrease in two cases:
(1) U decreases, and/or
(2) LF increases.
Fewer people working means that U has increased by 125,000. If, at the same time, LF increases more than 125,000, then UR will decrease.
LF can increase when new workers, who were previously not included in labor force, join the labor force. In this case, UR will decrease even if U increases.
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