Understanding the Unemployment Rate

After the Great Recession, it took until 2019/early-2020 for the national labor market to recover to pre-Great Recession levels. Even then, it still was short of it’s pre-2000 high. Because of COVID-19, we are going to have to make those gains back up. Here are some general rules for how to tell whether the unemployment news is good or bad:

1. If the unemployment rate falls and the size of the labor force falls then the economy is worsening.

2. If the unemployment rate falls and the size of the labor force does not fall, then the economy is improving.

3. If the unemployment rate rises, then the economy is getting weaker. The unemployment rate rises either because people lose their jobs or because the labor force grows faster than employment. Either scenario is a negative sign for the economy. 

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