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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 17, 2013 at 11:53 AM

Why does the jobless rate fall even when jobs are lost?

Washington’s unemployment rate fell to 7.3 percent in March, two-tenths of a point lower than February and the lowest since December 2008. So far, really good. However, the state lost an estimated 5,500 jobs, according to the Washington Employment Security Department. That erases the revised gain in jobs for February. The big drag was a loss of 4,600 public-sector jobs, while private employers shed 900.

The unemployment rate is a significant improvement over March 2012’s 8.4 percent. It’s even more striking for the Seattle-Bellevue-Everett metropolitan area: 5.5 percent for March, down from 7.3 percent from the same period earlier. By contrast, the unemployment rate in Pend Oreille County in northeast Washington was 14.1 percent.

Statewide, 53,000 non-farm jobs have been added over the past year, according to the report. The biggest gainer has been 10,500 jobs in manufacturing, a number sure to take a hit as Boeing scales back some employment. Retail trade jobs increased by 10,000. A total of 254,000 people remain unemployed. The latest data are preliminary.

So why does the unemployment rate go down even when jobs are lost? As state labor economist Anneliese Vance-Sherman pointed out, the jobs survey tends to be volatile. But something else is at work, too. The state’s labor force fell by 18,900 between March 2012 and this past month, at least the official count. A lower labor participation rate, which counts the number of people 16 and over in the workforce or looking for work, has been one of the vexing aspects of the recovery nationwide. Nationally it fell in March to 63.3 percent, the lowest since 1979.

Economists aren’t sure about the reasons. Part of it may be demographic: Older baby boomers are taking early retirements. Then there’s the mismatch between workers and skills, causing many to drop out officially, even though they would still like work.

Last year, Heidi Shierholz, economist with the Economic Policy Institute, estimated that two-thirds of the problem was cyclical and only one-third structural. In other words, lack of demand in the economy is still holding back job creation and keeping workers out of the official count. Earlier this month, she said about 4 million workers are in that cyclical trap. “If those workers were in the labor force looking for work, the unemployment rate would be 9.8 percent instead of 7.6 percent. Currently, the unemployment rate is hugely underestimating the amount of labor market slack.”

And Don’t Miss: Ooops, turns out the economic justification for austerity is wrong | The Atlantic

Today’s Econ Haiku:

When oil prices fall

Worry spills from the pipeline

Oilfield canary


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