Editor’s note: This is the first of two columns on the unemployment rate. The second column is Changes in society affect the unemployment count.
The U.S. Bureau of Labor Statistics will release estimates of the unemployment rate and the number of employed people Friday morning.
As is usual when the economy is not booming, most news reports will focus on the national unemployment rate. It stood at 5.7 percent in September and private analysts expect it to increase to 5.8 or 5.9 percent.
The unemployment rate is probably the most familiar of the national economic indicators, but few people know what it really means. Even fewer understand how the raw unemployment rate, by itself, fails to pick up the nuances of employment conditions.
Understanding unemployment is particularly important when the economy is far from booming, so a brief review is timely. Today’s column describes how the numbers are calculated. On Sunday, we’ll examine how deeper societal changes affect the numbers.
The unemployment rate is the percentage of the labor force that was not employed during the calendar week that contains the 12th day of the month, based on a U.S. Labor Department survey of 60,000 households.
Understanding the terms “labor force” and “employed” are crucial.
We start with everyone in the nation who is 16 years of age or older. We then subtract those people who are either on active duty in the armed forces or who are in institutions such as prisons or mental hospitals. The result is the “civilian, non-institutionalized population.” Everyone in this group is divided into one of three categories: “employed,” “unemployed” or “out of the labor force.”
The BLS says: “People are considered employed if they did any work at all for pay or profit during the survey week.” That could be as little as an hour or as much as 80 or 90 hours.
People who have a job or are self-employed but who were ill, on vacation, on strike, taking care of a sick family member, or not working because of bad weather are considered “employed” but put in a distinct category of “with a job, but not at work.”
If you do not meet the definition of “employed” you either can be “unemployed” or “out of the labor force.” This distinction is perhaps the least understood by the general public. To be deemed unemployed, one has to be “presently available for work” and have “actively looked for work in the past four weeks.”
Actively seeking jobs includes filling out applications, sending out resumes, contacting employers, responding to ads by mail or telephone and several other actions. But just reading the job ads or brushing up your resume does not count.
If you are not available for work and not actively seeking work you are classified as “out of the labor force.” The two most numerous groups are retirees and full-time students. Women or men working in the home are another large group, but not as significant as in the days of June Cleaver. Disabled people are yet another group.
Knowing these basic definitions, more nuances become clear. If you worked at all, you are listed as employed, even if you have a Ph.D. in rocket science but only put in 10 hours pushing shopping carts at MegaMart. The BLS does try to tabulate such underemployment resulting from involuntarily reduced hours or jobs that do not utilize workers’ education and experience, but one has to dig into the small print to find it.
You also can be listed as unemployed even if you have never held a job in your life. The college student who has studied full time without working for pay, then graduates and sends a resume to a potential employer, would be classified as not working but actively seeking work — in other words, “unemployed.”
It is common for people in areas of high unemployment to stop looking for jobs because they know that few are available. Iron Range communities in the early 1980s were good examples. Sometimes more than 1,000 people in a community of 5,000 to 10,000 lost their jobs at the same time. Most wanted jobs and would have applied for jobs if they were available.
But the town was small, the entire local economy was depressed, and many decided that wearing out their shoe leather looking for work was a waste of time. The general public would consider such people unemployed, but they are classified as “out of the labor force.”
These are categorized as “discouraged workers” and their numbers are tabulated, but again, this is in the small print and seldom noticed by the media.
The number of such discouraged workers is substantially greater when the unemployment rate is high. Thus, this category results in a greater undercount of what we might term the “truly unemployed” when the national rate is at 6 percent than when it is at 3 percent.
In the Twin Cities area, the number of discouraged workers is almost certainly higher now with unemployment higher than 4 percent than when it was about 2 percent just a few years ago.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.