More jobs and unemployment rate rises.

An article from the Associated Press found on the Voice of San Diego website tells us that more jobs were added to the US economy in the last three months and yet the unemployment rate rose. Since that sounds somewhat strange, we thought we might explain how it happens. (Click here for article)

Some definitions:

Unemployment Rate: the percentage of the labour force that is currently unemployed.
Labour Force: the number of people in the working age population that are "willing and able" to work.
Participation Rate: the labour force divided by the working age population.

During a recession, when unemployment rates are high and the duration of unemployment is relatively long people become "discouraged" and stop looking for work. When this happens, the labour force decreases.

When workers and firms start to believe that the economy is recovering, more jobs are created. Job seekers are more successful. Those workers that were once discouraged now reenter the labour force and look for jobs. If the increase in the participation rate is greater than the number of jobs created, the measured unemployment rate rises. This is not necessarily a bad thing as it is a sign that confidence is growing.

Unemployment and Participation Rates are published in Canada by Statistics Canada and in the U.S. by the Bureau of Labor Statistics.