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What are the reasons for the increase in the unemployment rate in June?

The latest Labor Department jobs report found that the number of people out of work had grown during June, despite there now being more available jobs across the country.

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What are the reasons for the increase in the unemployment rate in June?
FREDERIC J. BROWN AFP

On Friday the Labor Department released their new unemployment report, which addresses the state of the US jobs markets as well as tracking the post-pandemic recovery.

From the outset the findings appear to be a bit of a mixed bag for President Biden, who has placed so much emphasis on rebuilding the American economy during his first six months in office.

The headline figure was the 850,000 non-farm payrolls jobs being added to the jobs market, suggesting that businesses are feeling able to rehire staff. However the national unemployment rate rose slightly to 5.9%, staving off any hopes of a swift return to pre-pandemic conditions.

Why did the US unemployment rate increase in June?

The pandemic has had a very uneven effect on American society with some people now finding themselves in a more comfortable position that they were at the start of 2020. Currently the labour market is fairly tight, meaning that those looking for jobs have a lot to choose from as businesses around the country are looking to reopen.

Because of that imbalance between the ‘supply’ and ‘demand’ of the jobs market, employed Americans are feeling confident enough to leave their jobs in search of something better. In June the monthly rate of people voluntarily leaving their jobs rose from 164,000 to 942,000. These people would then be classed as unemployed, distorting the figures slightly.

Biden will hope that this is just a temporary trend as the jobs market readjusts after a tumultuous 18 months of the pandemic. It could also be seen as justification for the 26 states who have opted to cancel the additional unemployment benefits, citing it as an incentive to avoid returning to the workplace.

How will the unemployment rate affect the pandemic economic recovery?

With the extra 850,000 jobs added to the job market the US has now managed to recover around 15.6 million of the 22.3 million jobs that were lost in March and April of 2020. However this means that the jobs market is still more than 7 million shy of the pre-pandemic level, with evidence suggesting that the recovery has begun to plateau in recent months.

One sector to have enjoyed a substantial boom in the past month is the hospitality industry which has benefitted from both an easing of covid-19 restrictions and the beginning of the summer season. Hospitality was responsible for a gain of 343,000 new jobs in June, more than 40% of the total growth across all sectors.