The U.S. economy added a solid 175,000 jobs in May, but the unemployment rate rose to 7.6 per cent from 7.5 per cent.
Why did the unemployment rate go up when employers added more jobs?
Because the government does one survey to learn how many jobs were created and another survey to determine the unemployment rate. Those surveys can sometimes produce different results.
One is called the payroll survey. It asks mostly large companies and government agencies how many people they employed during the month. This survey produces the number of jobs gained or lost. In May, the payroll survey showed that companies added 178,000 jobs, and federal, state and local governments shed 3,000.
The other is the household survey. Government workers ask whether the adults in a household have a job. Those who don’t are asked whether they’re looking for one. If they are, they’re considered unemployed. If they aren’t, they’re not considered part of the workforce and aren’t counted as unemployed. The household survey produces each month’s unemployment rate.
In May, the household survey showed that 420,000 people began looking for work. That’s a good sign that they were more confident about their prospects for finding a job. Nearly three-quarters of those people found work. But the rest did not, so the number of unemployed rose by 101,000 to almost 11.8 million. That was enough to increase the unemployment rate.
Unlike the payroll survey, the household survey captures farm workers, the self-employed and people who work for new companies. It also does a better job of capturing hiring by small businesses.
But the household survey is more volatile from month to month. The Labor Department surveys just 60,000 households, a small fraction of the more than 100 million U.S. households.
By contrast, the payroll survey seeks information from 145,000 companies and government agencies — and they employ roughly one-third of non-farm employees. The employers send forms to the Labor Department or fill out online surveys noting how many people they employ. They also provide wages, hours worked and other details.
Most Americans focus more on the unemployment rate, which comes from the household survey. But economists generally prefer the jobs figure from the payroll survey. And they note that the surveys tend to even out over time.