The higher unemployment rate may not be a bad thing this time
The higher unemployment rate may not be a bad thing this time
The dust is starting to settle from the global stock market sell-off Monday. One development that helped spark fear among investors was the increase in the U.S. unemployment rate, which ticked up to 4.3% in July from 4.1% in June. A rising jobless rate is not, on the face of it, usually a good thing. But this time, the reasons might not be so bad.
There are two ways unemployment can go up.
“One is the bad way, and one is the not-so-bad way,” said Katie Nixon, chief investment officer for wealth management at Northern Trust. “The bad way is people get laid off.”
That is not quite what happened last month. There was a jump in temporary layoffs — possibly due to Hurricane Beryl — but those are expected to be, well, temporary.
“The other way the unemployment rate can rise is you just have more people entering the workforce,” Nixon said.
Unemployment, technically, isn’t just people without jobs. It’s people without jobs who are looking for jobs. So, if you have more people starting to look, technically you have more unemployment. That did happen in July, said Dana Peterson, chief economist at The Conference Board.
“You had a lot of people who reentered the labor market or were new to the labor market,” Peterson said.
That can happen for a lot of reasons, according to Susan Houseman, senior economist at the Upjohn Institute.
“Most recently, it may have happened because wages are going up,” Houseman said. “It might pull in some retirees or people who feel the jobs available to them are attractive.”
Another reason, though not the main reason, more people are looking for work is that some are new immigrants, and that’s not a bad reason, said Nixon of Northern Trust.
“They have filled a really important gap for us, and that’s allowed labor inflation to fall,” Nixon said.
It’s helped ease worker shortages, which is different from bidding down wages by competing against U.S. workers, said Wharton professor Zeke Hernandez, author of “The Truth About Immigration: Why Successful Societies Welcome Newcomers.”
“When businesses don’t have enough people to hire, that is, there’s not enough labor supply, they have to pay higher wages, and they pass on those wage increases to customers,” Hernandez said.
So, if the unemployment rate had to go up, immigration and higher wages aren’t the worst reasons.
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