The Management and Coordination Agency has thrown another monkey wrench into the ongoing debate among economists on both sides of the Pacific over that seemingly simple question. At the time of its March 31 announcement that seasonally adjusted unemployment had risen to a record 4.9 percent in February, MCA supplied details that render suspect the conventional, and recently repeated, interpretation of the higher jobless number. An alternative explanation has implications for the argument about where the economy currently stands.
Unemployment typically is a lagging indicator.
As such, it can increase even if, as has been the case since mid-1999, industrial production and other broad aggregates swing upward. One reason is that potential workers, hearing that employment prospects are improving, may start looking for jobs. They then are added to the labor force, increasing the denominator of the unemployment rate. If their job searches initially are unsuccessful, however, they will be counted as jobless and lift the unemployment rate. Should economic conditions continue to improve, the pool of potential workers eventually will shrink, reducing the increase in the ranks of the measured jobless.