Evaluating improvements in unemployment

In 2010 North Carolina’s unemployment rate dropped from 11.2 percent to 9.6 percent. That’s a welcome big drop. But is there more behind it that may not make us smile? N.C. Cooperative Extension economist Mike Walden responds.

“Well, there is. … There are two employment reports that come out every month. The one that the unemployment rate is based on has seen this drop …  in the unemployment rate; however, it has been accompanied by only an increase in jobs of about 12,000. So many people are scratching their heads, saying, ‘Well, how can we get a big drop in the unemployment rate when we only had 12,000 more jobs?’ And that’s because over this same time period we’ve had 80,000 people who previously had been counted as unemployed, not counted. And this is because they have dropped out of the labor force.

“Now some of them may be going back to school, which would be good, but a large number of them are likely people who have effectively given up looking for work. They are not sending out resumes. They are not going on job interviews. And again to be technically counted as unemployed based on the official numbers, you have to be actively looking for work in order to be counted as unemployed.

“So this is not good — the fact that the big drop in the unemployment rate is due to people dropping out of the labor force. Now if we put them back in, studies show that that would increase the unemployment by somewhere between a half to a full percentage point.”