If New York Is Adding So Many Jobs, How Come Unemployment Remains High?

The government reported Thursday that New York City’s unemployment rate declined slightly, to 9.9 percent in August. But the good news belies a troubling trend: while New York City is gaining jobs quickly, unemployment remains high — higher than it was in the worst days of the recession in 2009.

It’s a paradox that’s hard to explain. “If we’re adding more jobs, then how is the unemployment rate increasing, why aren’t those people getting hired? That would be my question,” said Heather O’Donnell, a radio ad saleswoman, who was taking a break from work in Bryant Park on a recent afternoon.

Unemployment can sometimes rise in an economic recovery, but it’s unusual for the jobless rate to rise in tandem with net job creation.

“Having studied the New York City economy for 18 years, I’ve never seen this,” said Barbara Byrne Denham, an economist with the real estate firm Eastern Consolidated.

Last month, Denham published a five-page paper entitled “Why Is New York City’s Unemployment Rate Increasing When Job Growth Is So Strong?” Having explored possible explanations, such as a rise in commuter jobs (non-residents are not counted in the city’s unemployment rate), Denham concluded the problem is the formula used by the Bureau of Labor Statistics.

“The 2010 census data severely undercounted the population here in New York City, and that skewed the model pretty severely,” Denham said, noting that earlier models predicted the city’s population would grow by 360,000, while the census found only 166,000 additional residents.

Another paper, by the left-leaning Fiscal Policy Institute, estimates the real unemployment rate to be about one percent lower than the official number.

But the statistician who is responsible for New York City’s unemployment number defends the numbers.

“I think the stats we collect actually paint a very coherent picture of job growth, persistent unemployment, and low wage growth,” said Martin Kohli, chief regional economist with the Bureau of Labor Statistics in New York City.

Kohli said the two numbers, which seem to describe the same thing (working patterns in New York), actually are different: the unemployment rate is derived from a survey of households, while the job creation number comes from a separate survey of employers. Economists tend to put more faith in the employer survey because the sample is larger.

He said there’s no tidy explanation for the apparent contradiction, but it is likely due to a variety of factors: an increase in commuting from outside the city, but also freelancers taking staff jobs, and employed people taking second jobs.

Meanwhile, people restarting their job hunt may be pushing unemployment up.

“It’s all so easy for people to be armchair critics and say, ‘My experience doesn’t match this survey, therefore the survey has to be wrong,’” Kohli said. "That's not the kind of thing that the Bureau can really pay attention to."

The question may have the air of an academic debate, but the fact is the unemployment rate matters to everyone because it tells us how the economy is doing. And right now, the mixed signals are sowing confusion.