unemployment rate may 2013A couple of weeks ago the Labor Department reported that while the economy added 175,000 jobs in May, the unemployment rate actually went up from 7.5% to 7.6%. The unemployment rate had been trending down and to the casual headline surfer this could be concerning. But the educated Weakonomics reader knows better.

First, you know that the economy can add jobs and still have an increase in the unemployment rate (right? You know this right?). You know this because the unemployment rate is only counting people currently looking for work and not those that have given up for the time being. If the number of people looking for work increases, then the unemployment rate can go up if they don’t find jobs. So why is this a good thing?

More people looking for work can’t be a bad thing. The reason the job market hasn’t fully recovered isn’t simply the fact that not everyone is hiring yet. The labor market is highly inefficient. Job hunters and hirers regularly don’t find optimal matches. A hiring manager may post a job but can’t fill it with someone with the right skills because either that person isn’t currently looking for work or can’t relocate to take the job. With more people searching for work, you have a greater chance of finding someone with the right skillset and lives nearby.  The right fit for a job is far more productive than just filling the job.

The Labor Department is only able to report the total number of jobs added or lost. They can’t really speak to how good that job is or whether the hiring decision was ultimately the right one. Hiring the wrong person can lead to decreases in productivity which hurts the economy and the labor market.

But, a properly matched labor market (aided by an increasing number of people looking for work) is better for the economy. A healthier economy is going to create more job opportunities for people that haven’t managed to find one yet.

Don’t assume this as an endorsement of an increasing unemployment rate. It’s very possible for the unemployment rate to fall and people continue to enter the workforce (more people find job than people enter the workforce). However, our economic recovery has been so feeble that sometimes the headline numbers don’t tell the whole story. As long as the economy is adding more jobs each month, an increasing unemployment rate is acceptable.

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categories: economics, jobs