Why the unemployment rate drop is for real

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The U.S. unemployment rate dropped to 8.5% in December, while a broader measure dropped even further to 15.2% from 15.6% the prior month, both at their lowest levels since February 2009f, writes Phil Izzo.

While the unemployment rate has been falling in part due to people leaving the labor force, a large portion of this month’s number appears to come from people finding jobs.

The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

In December, the household survey showed the number of people employed rose by 176,000, as the population increased by 143,000 over the month. So even though the labor force — the number of people working or looking for work — fell by 50,000, job growth is outpacing the increase in the population.

When people leave the labor force it could be due to discouragement of the long-term unemployed or by choice over retirement or child care. The labor force has dropped dramatically over the course of recession and recovery, and concerns have been raised it was due to discouraged workers. If those workers return to the labor force, it could send the unemployment rate higher.

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Peter Schorsch is the President of Extensive Enterprises and is the publisher of some of Florida’s most influential new media websites, including SaintPetersBlog.com, FloridaPolitics.com, ContextFlorida.com, and Sunburn, the morning read of what’s hot in Florida politics. SaintPetersBlog has for three years running been ranked by the Washington Post as the best state-based blog in Florida. In addition to his publishing efforts, Peter is a political consultant to several of the state’s largest governmental affairs and public relations firms. Peter lives in St. Petersburg with his wife, Michelle, and their daughter, Ella.