Umm…Isn’t This Increase In Unemployment Good News?

I realize that most people assume economic development professionals are economists…in fact, few of us are. But it may seem silly that I need to ask a basic economics question, which is “Isn’t this increase in unemployment actually good news?” Here’s my theory:

In a bad economy, people who are unemployed for a long-period of time and/or who have low confidence in their job prospects stop looking for work. Frankly, it’s a rational decision for many of them. But it has the slightly misleading effect of lowering the unemployment rate, which only includes people actively job seeking. (There are good reasons for this, like not counting retired people or independently wealthy playboys in the rate). But as their optimism in the state of the economy rises, they start looking again. The article even recognizes that: “An improving economy has lured those who had given up looking for work back into the labor market.”

Now, this is a bummer because it raises the unemployment rate, but in the long run it’s a good think because confidence is really the most vital driver of recovery. Confidence leads consumers to start buying which leads businesses to start hiring which leads to…well, you get the rest.

I’m not trying to be overly optimistic and pretend like there’s no problems in the economy or that we’re not at risk of further economic downturn. But let’s also recognize things for what they are, and not get too pessimistic either. And now, turn to page 46 in your economics 101 textbook, where we’ll study a new concept called “supply & demand”…


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