The Labor Department reported on Friday that the jobless rate increased slightly in August to 3.7%. Labor analysts pointed to “positive” causes for the increase, despite the fact that more individuals finding themselves unemployed may seem worrying, particularly in light of ongoing concerns about a recession.
According to ZipRecruiter’s chief economist Julia Pollak, a higher unemployment rate was “the best news in this report.”
It could appear strange at first. How is a rise in the unemployment rate advantageous?
The dynamics of the labor market that drove the jump hold the key to the solution.
The causes of the August jobless rate increase
The unemployment rate increased from 3.5% in July by 0.2 percentage points, which was the lowest since 1969 and tied with early 2020.
According to analysts, the increase in employment in August was mostly caused by the hundreds of thousands of new workers.
Since they are not actively seeking employment, the government does not classify those who are not in the labor force as being unemployed. During the pandemic, people stopped working for a variety of reasons, including as illness, having children or other family obligations, or retiring early.
The number of persons looking for work has increased, and because they are now officially listed as unemployed, the unemployment rate has increased as a result.
According to Pollak, 786,000 people joined the movement last month, which is a “huge” number.
The labor force participation rate, which measures the proportion of Americans who are in the labor force as a whole, increased by 0.3 percentage points to 62.4%. According to Pollak, this is a significant increase for a statistic that typically fluctuates by just 0.1 points, if at all, from month to month.
“There’s more willingness to work, more eagerness to find jobs and actively search for them,” Pollak said.
Why the Federal Reserve and employers benefit from a wider labor pool
In light of this, economists said an increase in the jobless rate is not immediately concerning.
The job market is strong, with continuous job growth and plenty of openings, so employees won’t likely experience prolonged unemployment. Additionally, it’s excellent news for companies who are having problems filling positions because they now have a larger pool of candidates to pick from.
“This means that more people are participating in the labor market, and while some of those individuals may not be employed yet, this is promising news for employers,” based on AnnElizabeth Konkel, a senior economist at the employment website Indeed.
Even though it tied for the greatest level during the Covid-19 recovery in August, labor force participation has still not fully recovered from the drop-off it experienced during the pandemic.
According to Daniel Zhao, head economist at job site Glassdoor, “prime age” labor force participation—for employees ages 25 to 54—rose to 82.8% in August, nearly returning to its pre-pandemic level. According to him, this metric was the “star” of the jobs report. Examining this number over time enables one to account for some major demographic patterns, such as the retirement years of the baby boomers.
A broader labor pool is also advantageous for the Federal Reserve, which has been attempting to control inflation. According to Zhao, if employers can hire workers off the sidelines rather than stealing from rival companies by raising salaries, it might help keep inflation in check.
“The rising unemployment rate is a concern if it continues,” Zhao said. “But the strong labor force gains we saw underneath are a really encouraging sign.”
However, considering that there are almost two unfilled jobs for every unemployed person, experts say the risk of long-term unemployment is minimal.
It’s unclear why people left the sides
The Labor Department doesn’t specify the reason why people started working again in August. However, according to survey results, money may be a factor in some employees’ choices.
According to a recent ZipRecruiter survey, 59% of job seekers indicated they felt financial pressure to accept their first job offer in July, up from 51% the previous month. Serious financial issues also increased significantly, up to 16.6% from 12.3%.
The dynamic has both a good and bad side, according to Pollak. According to her, on the one hand, people may feel they need a job to earn money as their savings disappear and inflation strains household budgets; on the other hand, it indicates that workers see a gap in the labor market.
“When your chance at winning the lottery goes up, you’re more likely to play the game,” Pollak said. “People do jump in and give it a try when it’s easier to succeed.”