Which Unemployment Rate?

[pinqy]

Every month without fail, some idiot will ask about the "real" unemployment rate or claim that the figures are bogus (for whatever reason) or claim that people not collecting Unemployment Insurance aren't counted. So an overview is needed so I can just link here to save myself the trouble of rewriting the same rebuttals every month.

First up is collection: Every month the Census Bureau does a personal interview at approximately 60,000 households across the country asking a long questionnaire about labor market activity. Using statistical methodology refined over the years, the results are aggregated to represent the nation as a whole.

Concepts: Not everyone in the country can participate in the Labor Market, so the Population used is the "Civilian Non-Institutional Population" consisting of everyone age 16 years and older who is not in prison, or the military, or long-term mental health or other long term health facility. From 1984-1994 military personnel stationed domestically were included in one version of the official figure.

Employed: "All persons who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees, worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family, and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. For purposes of occupation and industry classification, multiple jobholders are counted in the job at which they worked the greatest number of hours during the reference week. Included in the total are employed citizens of foreign countries who are temporarily in the United States but not living on the premises of an embassy. Excluded are persons whose only activity consisted of work around their own house (painting,repairing, or own home housework) or volunteer work for religious, charitable, and other organizations." This definition has not changed since 1957.

Unemployed: "All persons who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed."

Before 1967 this definition did not include the 4 week search period and included those who "would have been looking for work except that they were temporarily ill or believed no work was available in their line of work or in the community."

Before 1994 this definition also included those who "were waiting to report to a new wage or salary job within 30 days (and were not in school during the survey week" whether or not they had looked in the last 4 weeks.

Together the Employed and Unemployed comprise the "Labor Force;" those who are participating in the Labor Market. Everyone else is "Not in the Labor Force" because they are not actually participating.

The Official Unemployment Rate is the number of Unemployed divided by the Labor Force. The usefulness of this measure is to see how successful or unsuccessful people are at finding work.

Alternative measures are also published each month to show different aspects.

"U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force." This is useful as a look at long term unemployment. At any point in time there's a degree of "frictional unemployment:" people temporarily in between jobs, but the U-1 looks only at those still looking for work after more than 15 weeks.

"U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force" This is the percentage of the Labor Force who lost their jobs in that month. Quits are not included. I would think this is a good number to look at right now.

"U-3: Total unemployed, as a percent of the civilian labor force (official unemployment rate)" Already discussed.

"U-4: Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers" Discouraged workers are "persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify." This is closer to the pre-1967 definition and is useful for looking at potential, though currently unavailable sources of labor. The 12 month requirement was added in 1994. This is a very subjective measure.

"U-5: Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers" Marginally attached workers are those who want and are available and have looked in the last 12 months but are not looking now for any reason. This group was not calculated until 1994 and represents another potential source of labor IF the circumstances change. Discouraged workers are a subset of the marginally attached. Again, this is a very subjective measure.

"U-6: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." Part-time for economic reasons are those "who want and are available for full-time work but have had to settle for a part-time schedule" because of either slack or changing business conditions or because no full-time work was available. It does not include people who work part-time due to family or health issues. This is the broadest measure and is useful for looking at total underutilization. It's extremely subjective especially when you consider that under this measure a person who works 15 hours a week because they can't afford full time day care is considered "Employed" while someone who is temporarily working 34 hours because business is slow is considered "Unemployed." I don't think anyone really wants an official definition that has an Unemployed person working more than twice as many hours as someone who is Employed. Nonetheless it's still a good look of the overall perceptions and difficulties of the labor market.

Also available in the Employment Situation report are detailed numbers of length of unemployment, separation of the Unemployed into people looking for work and people on temporary layoff, people who quit their job and people entering the Labor Force for the first time and those re-entering the Labor Force.

[Ohio Joe]

1. Good info...

Could you add source links? Thanks!

[pinqy]

3. links

Most of the info is found in the monthly Employment Situation Summary More details on definitions and margins of error can be found in Employment and Earnings: 2007-present or 1960-1980

A good overview is Measures of labor underutilization from the Current Population Survey while a more detailed look at alternate measures including the Reagan era inclusion of the military is BLS Introduces New Range of Alternative Unemployment Measures.

[Ohio Joe]

4. Thanks!

I did not know all of this, good stuff.

[tritsofme]

2. Thank you. I have been here since 2003

and invariably, the first Friday of the first full week of every month, we get all these bizzare conspiracies regarding faked numbers by the BLS and whatnot.

No matter how good or bad the number is, there is a crowd here that would have everybody believe its actually ten times worse.

It would do people on this board a world of service to read this thread before spouting off about unemployment numbers.

[RaleighNCDUer]

5. Just because it's nicely written up doesn't mean it is not bullshit.

In fact, it increases the bullshit measure.

The simple fact is, despite them being counted SOMEWHERE, the "unemployment numbers" that are published are the "officially unemployed", and do NOT include discouraged workers. They do NOT include people who are working 7 hours a week. They do NOT include people who are dropping out of the system and make their living bartering on E-Bay or selling drugs.

Because THOSE people are not considered part of the 'labor force', and therefore do not fit the U-3 definition of unemployed.

There is no better liar than a statistician.

[pinqy]

6. Who appointed you Supreme Decider?

Why should "discouraged workers" be included in a measure meant to look at active participation in the labor market???? Why should people voluntarily working 7 hours a week be counted as not having a job at all? (you didn't make a distinction of reasons). Why should a measure of the system include people not in the system? Make an actual argument as to why the official measure should include these.

The purpose of all the measures is to look at specific facets. What practical difference do you see between the current state and your proposal? Your proposal would make the labor market more difficult to evaluate and include greater error and bias due to the subjective nature of the elements you want to include.

[RaleighNCDUer]

7. Because there is no such thing as a "labor market"

at least since slavery was outlawed. There is just PEOPLE who need JOBS.

The claim that someone working 7 hours a week is "employed" is empirical nonsense - NOBODY can live on the income of 7 hours a week.

The claim that the guy who has given up and has returned to a state of dependency living in his mother's basement, doing odd jobs around to house to be useful is NOT unemployed is obvious bullshit.

The government numbers, the U-3 description, are designed to make things look better than the reality. It says 7 million unemployed, when there are 15 million who have no jobs, or only have jobs that do not meet basic survival standards.

The ONLY real measure of unemployment should be the number of JOBS it would take to reach a practical 'full' employment of 1 to 1.5% unemployment, balanced against the number of PEOPLE available to fill them. You know, like we had in the 60s. Before the republican began massaging the numbers to hide what their policies were doing to the economy.

Living in Mom's basement is NOT a lifestyle choice. It is the last option open before resorting to crime.

[pinqy]

8. Ah, redefining things to fit your politics.

I thought as much. But let's examine.
"The claim that someone working 7 hours a week is "employed" is empirical nonsense - NOBODY can live on the income of 7 hours a week." Your assumption here is that the only valid measure of employment is whether or not someone can live off of that income alone. Interesting and useless. Secondary income earners don't need to live off of their income. High school students with part time jobs to earn spending money don't need to live off of their income. When I was in college at age 29 I did fine with 4 hrs/week supplementing grants, loans and savings. "Employed" is supposed to be people who are working, not people who earn enough to support themselves.

"The claim that the guy who has given up and has returned to a state of dependency living in his mother's basement, doing odd jobs around to house to be useful is NOT unemployed is obvious bullshit. It is bullshit. Good thing no one is making that claim. Re-read the definition of "Employed." Your example doesn't qualify.

"The government numbers, the U-3 description, are designed to make things look better than the reality." No, it's designed to show the percentage of people trying and failing to find work. Why do you think that's not at all useful?

"It says 7 million unemployed, when there are 15 million who have no jobs" There's a lot more than that. Out of the adult civilian non-institutionalized population (234,913,000 people), only 141,748,000 people have jobs, meaning 93 million people don't have jobs. But this includes retirees, stay-at-home spouses, full-time students, the independently wealthy, and people who otherwise don't want jobs. Only 12,467,000 are actually trying to get a job.

"The ONLY real measure of unemployment should be the number of JOBS it would take to reach a practical 'full' employment of 1 to 1.5% unemployment, balanced against the number of PEOPLE available to fill them. And how do you figure that someone who is not looking for work is available to fill a job? You really can't get hired unless someone knows you exist.

"You know, like we had in the 60s. Before the republican began massaging the numbers to hide what their policies were doing to the economy." Before 1967, Unemployed included discouraged workers and those about to start a new job regardless of whether or not they looked. Those are the ONLY two differences in definition. In 1967, under Johnson (who according to you was a Republican), the definition changed to exlude discouraged workers. Under Reagan an alternate measure included the military, but that was the only change and it went away in 1994. In 1994, under Clinton (another Republican?) a small change required that even if you expected to start a new job you still must have looked in the last 4 weeks.

What specific changes under Republicans were you referring to?