Although some people may initially feel concerned when they observe an increase in unemployment rates, a closer examination reveals several positive aspects to this trend that can at the end be beneficial for the economy.
Why unemployment went up
The labor market in the United States was significantly impacted during the rise of the COVID-19 pandemic, leading to the temporary closure of over 120,000 businesses and the loss of employment for more than 30 million American workers.
Since then, the economy has been on the path to recovery, with a growing number of job opportunities and decreasing unemployment rates, as stated by the U.S. Chamber of Commerce.
However, in August, the nation experienced a net loss of 514,000 jobs, resulting in a total of 6.4 million Americans being unemployed. It’s important to note that 222,000 individuals managed to secure new employment during the same period, increasing the total number of employed individuals to 161.5 million.
This indicates an increasing workforce participation, with 736,000 additional workers entering the job market that month, resulting in a total workforce of 167.8 million.
While employers added an impressive 4.5 million new jobs in 2022, an alarming trend has emerged, with 1.5 million fewer Americans participating in the labor force compared to February 2020. This shift in workforce dynamics highlights potential challenges in the job market despite the overall increase in job opportunities.
Five reasons why rising unemployment can be positive
- Increased job seekers
The rise in unemployment can be attributed to more people actively seeking job opportunities, even if they have not recently lost employment. This indicates a dynamic job market and growing confidence in job prospects, reflecting the economy’s recovery from the challenges posed by the COVID-19 pandemic.
- Economic Stability
A slight increase in unemployment suggests a shift from rapid job creation to a more consistent pace. This steadier pace helps in maintaining a stable economy by preventing significant ups and downs in the job market, promoting overall reliability.
- Investment in education and skills
An increase in job seekers often leads to increased investment in education and skills development. Individuals may pursue further training or education to enhance their competitiveness in the job market, resulting in a more skilled workforce, which benefits both individuals and the economy in the long term.
- Encouraging new businesses and ideas
When more people are looking for work, it can make most of them think about starting their own businesses or coming up with new ideas. This can lead to the creation of new businesses, products, and services, which helps the economy grow. It also makes the economy stronger and better at dealing with changes.
- Balancing wages and fair hiring
The increase in unemployment can help maintain a balance between wage growth and price stability. It prevents wages from rising too rapidly, which can lead to inflation. Achieving this balance aligns with the Federal Reserve’s goals and ensures a fairer job market, encouraging companies to consider a broader range of candidates, ultimately enhancing inclusivity and diversity in the workforce.