Economy
3:56 pm
Thu January 5, 2012

5 things to know about the "unemployment rate"

Few monthly number reports generate as much audience response as the monthly unemployment numbers.

Monthly housing numbers or monthly retail sales figures just don't seem to push people's buttons as much.

When we report on the unemployment numbers, we often receive comments attempting to inform us what the "unemployment rate" actually means - like this comment we received recently:

Unemployment numbers are comprised of those that are in the job market for the past 30 days. It does not include those that have not been in the job market in the last 30 days: people who have given up looking; those that have gone off unemployment because it has run out.

While some of this is true, not all of it is.

The government's unemployment numbers are not based on the number of unemployment insurance claims.

They are based on a giant phone survey.

1. A big federal agency determines the unemployment rate

The U.S. Bureau of Labor Statistics (BLS) is part of the U.S. Labor Department. The BLS is the main federal agency charged with measuring labor market activity in the country.

2. How the BLS comes up with their numbers

The BLS has a web page explaining how they collect data for their monthly employment numbers.

Every month, as the page explains, 2,200 "highly trained and experienced Census Bureau employees" interview people from a representative sample of 60,000 households around the country.

These households represent around 110,000 individuals, so this survey is much more exhaustive than the typical 2,000 person political poll.

3. What "unemployed" really means

Officials say their concepts for gathering the employment numbers are pretty simple - there are three categories of people they're looking for:

a) People with jobs are employed.

b) People who are jobless, looking for jobs, and available for work are unemployed.

c) People who are not in the "employed" category, and are not in the "unemployed" category fall in the "not in the labor force" category.

Here's how the BLS summarizes it:

Employed persons are:

  • All persons who did any work for pay or profit during the survey week.
  • All persons who did at least 15 hours of unpaid work in a family-owned enterprise operated by someone in their household.
  • All persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons, whether or not they were paid for the time off.

Unemployed persons are:

  • All persons who did not have a job at all during the survey reference week, made at least one specific active effort to find a job during the prior 4 weeks, and were available for work (unless temporarily ill).
  • All persons who were not working and were waiting to be called back to a job from which they had been laid off (they need not be looking for work to be classified as unemployed).

People who are "not in the labor force" does include people who have "given up" on finding a job (as it was put by the above commenter).

But not all people "not in the labor force" have given up.

Some are retirees, some are in school, and some have family responsibilities.

Those who have "given up" are classified as "discouraged workers" by the government.

The government classifies this as someone who can work, but who has not actively been looking for work in the last four weeks for various reasons.

4. The "unemployment rate" isn't enough

The common complaint we get is that the government's "unemployment rate" doesn't provide an accurate picture of real world experiences.

That's true. It is just a number, after all. Statisticians have to draw the line somewhere.

But if you know what the number means, it helps put the rate into perspective.

The unemployment rate is the percentage of people who are actively looking for work (regardless of the status of their unemployment insurance).

If you want to count those who have given up looking for work, or those who are working part-time, but want to be working full-time - what number should you look at?

The government's "U6" number... Of course!

5. The "underemployment rate"

All those who are unemployed, have given up looking, and who are only employed part-time when they want a full-time job are captured in the BLS' U6 numbers.

So while the nation's unemployment rate averaged out to 9.3 percent (from the third quarter of 2010 through second quarter of 2011) - the "U6" rate was 16.3 percent.

We often report this as the rate of "unemployment and underemployment."

When Michigan's 9.8 percent unemployment rate was released last month, we reported this:

At 9.8 percent, the state’s unemployment rate is still above the national rate.

When people who have quit looking are counted, along with part-time workers who’d like to be full-time, Michigan’s rate of unemployment and under-employment is 18.8 percent.

Again, these are just numbers trying to reflect a "real-life" picture of employment in the U.S. and around Michigan.

Hopefully this helps explain what these numbers mean.

Drop a line below if you think there's anything else we should try to explain about labor market numbers.