Sat04192014

Last updateTue, 04 Nov 2014 9pm

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Calculating America’s unemployment rate: The rest of the story

   When times are good almost no one pays attention to economic indicators.  But when times are bad, it’s an entirely different story.  
   All at once, people who could have cared less about Gross Domestic Product, the Consumer Confidence Index, or such arcane statistics as new orders for durable goods, start hanging on every economic announcement.  They’re looking for signs that things are improving, but more often than not in the current environment, are bracing for more bad news.
 However, perhaps the most watched indicator, and the one that can spawn optimism or by itself bring even greater anxiety, is unemployment.  This is the statistic that hits home and according to the Bureau of Labor Statistics, in February, reached 8.1%.  Looking at it historically that’s not as bad as it sounds.  In the early 1980’s unemployment was hovering around 9% and the economy managed a very rapid turnaround.  But, if you’ve lost your job and can’t find another, that comment isn’t very helpful.
    Many people would be surprised to know just how much trouble the government goes to in order to calculate the unemployment rate.  While the unemployment statistic is derived by the Bureau of Labor Statistics, a part of the Department of Labor, the survey data itself is collected by the Census Bureau.  They’re under the Department of Commerce.  What can I say?   It’s a surprisingly collaborative undertaking.
    Each month the government surveys some 60,000 households to develop what’s called the “current population survey.”  This data is collected by mail, by phone, and even in one-on-one interviews.  The Census Bureau, and we know they’re a nosey bunch to begin with, ask a lot of questions in this survey and among them are questions about who has a job and who doesn’t.  
   There are also follow on questions about how recently a member of the household was laid off from work; was their decision to leave work voluntary; are they actively looking for work; are they receiving unemployment insurance; and on the less optimistic side, are they discouraged and not actively seeking employment.  
   This gives the Bureau of Labor Statistics a lot to work with in calculating their monthly summaries.  The basic unemployment statistic we’re used to hearing is a simple calculation.  It’s the number of unemployed, defined by what’s called the U3 statistic, which represents those who are unemployed but willing to work, divided by the total labor force.  Easy enough, but nothing is ever quite that simple in economics.  The details get a bit more complicated.  For instance, out of the roughly 200 million who make up our prospective workforce, the number includes the military.  It also includes people in prison.  Before the 1980’s neither one of these groups was used in the calculation.  It’s been said that the only reason these two groups are included is to make the unemployment rate seem lower.
   However, the number that probably warrants more attention is simply in the definition of who is unemployed and who isn’t.  The Bureau of Labor Statistics identifies several levels of unemployed.  From those who are voluntarily out of work, to those actively looking for work, those who are part-timers, and those who have become discouraged and don’t bother anymore.  However, only those actively looking for work are included in the monthly statistic.   
   It’s also been argued, and the data from this era isn’t as thorough as it is today, that the great depression’s 25% unemployment rate is well short of what it actually was.  Some economists think that if itinerant workers (there were roughly 1 million Americans in this category during the depths of the depression), part-timers, and discouraged workers are factored in, the number reached almost a third of the workforce.  For many people who lived through this era that doesn’t sound unreasonable, but it’s unlikely that anyone will ever have a firm grip on the data or the actual statistic.
    The current calculation, while more precise than those available 80 years ago, still doesn’t represent a resolution of that debate.  While this month’s number is 8.1% (high when you consider that it was 4.4% a year ago), when other types of unemployment data collected in the government’s survey are factored in, the number increases considerably.  This data, given the ominous references of U4, U5, and U6 – the unemployment statistic we hear on the news is called U3 – includes part time workers, discouraged workers, and the rather sad sounding reference, marginally attached workers.  When these numbers are included, the number gets closer to 13%.
    However, data, and what it means, can be debated by economists for hours on end.  In fact, this discussion on how to calculate the national unemployment rate has been raging for years.  But what make the unemployment rate so unique is that unlike all the other economic indicators it’s=2 0personal.
    Everyone, even those who have never been unemployed, feels a touch of anxiety every time they wait for the announcement of the monthly unemployment report.  Hopefully though, it won’t be long, before the rate, instead of increasing, levels off, and begins what we all hope will be a steady decline.
 

You may reach David Kerr at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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