Why a Rising Unemployment Rate is Good News

Finally, more people feel it's a good time to look for work.

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It sounds dreadful. After drifting down consistently since last fall, the unemployment rate has suddenly shot up again, from 9.7 percent in March to 9.9 percent in April. But don't despair: A rising unemployment rate is actually one of the best signs yet that the economy is bouncing back.

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The unemployment rate rose for the right reason. Instead of shedding jobs, employers added 290,000 jobs in April, the strongest showing since 2007. The reason the unemployment rate went up is that a lot more people are suddenly looking for work. The government said that the labor force swelled by 805,000 people in April. That's more than three times the number of new jobs, so the proportion of people looking for a job but unable to find one went up. Still, that big increase in the labor force marks an important shift in sentiment among people on the fringes of the economy.

One of the most worrisome trends throughout the recession and early stages of the recovery has been the declining size of the U.S. labor force itself. By late last year, so many unemployed people had given up looking for a job that the labor force participation rate—the percent of adults who either have a job or are looking for one—had fallen to a 25-year low. Others who might have entered the labor force—recent graduates, stay-at-home spouses—decided not to. The government considers the labor force to include everybody who either has a job or is looking for one. So if you get laid off and spend your days hunting for a new job, you count as part of the labor force, even if you're not earning a paycheck. But if you get discouraged and give up, you don't count.

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Until recently, the ranks of "discouraged workers" who had given up looking for jobs had been swelling at alarming rates. Now, a long-term decline in the labor force participation rate finally seems to be reversing, as more people decide that it might be worth looking for a job after all. The participation rate bottomed out last December, when just 64.6 percent of working-age adults belonged to the labor force. It ticked upward for the first three months of 2010, and now it has risen to 65.2 percent. Before the recession, it hovered above 66 percent, so there's still a way to go. But the mere fact that long-unemployed people are looking for work again is encouraging.

One reason economists worry about a "jobless recovery" is that people who have been out of work for a long time find it extremely difficult to rejoin the working world, even as the economy recovers. They tend to lose touch with workplace trends, miss out on new skills, and simply become unmotivated. It might be tempting to write off the long-term unemployed as dropouts, except that not long ago they were productive workers who earned money and contributed to economic growth. Consigning them to the sidelines depresses the economy—and adds more weight to a social safety net that's already frayed.

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About 195,000 formerly discouraged workers have now reentered the labor force, presumably because they think the chances of finding a job are getting better. That's a tiny fraction of the 6.7 million Americans who count as the long-term unemployed, but it's still a break in the gloom. Another 610,000 people entered the labor force without being technically unemployed, a sign that first-time workers and other job seekers have decided to get off the couch and start hustling. There are a lot more where they came from, which means the unemployment rate might still rise in future months, before it turns around and starts declining for good. For once, it will be something to cheer.