Each month, we hear news reports about “today’s unemployment figures,” numbers that are currently very good and getting better.
What do those unemployment numbers measure? Are there different ways to figure them?
Basically, the numbers we hear are the “top line” numbers, collected by the United States Bureau of Labor Statistics (BLS), based on their surveys. But, just as the Dow-Jones Average is only one measure of how the overall stock market is doing, those top line numbers are only one gauge of employment.
The goal here is simply to explain what those unemployment numbers include and what they leave out.
First, the official BLS numbers come from sample surveys, which are adjusted later as additional data comes in.
Second, the numbers need to be adjusted for seasonal-weather effects. If we didn’t do that, then we couldn’t fairly compare unemployment in January and July. So, we adjust for known seasonal effects. The problem is that the average effects for January may not apply to this January. Perhaps it is warmer than normal so more construction can be done outdoors. Or perhaps a major storm knocked out power. These differences mean seasonal adjustments are always approximate. That’s why it is more reliable to look at trends and averages.
⇒ BLS data includes both seasonally-adjusted and raw numbers, but the news reports only the adjusted number. That’s reasonable. Sometimes, they add the caveat that this year’s weather may tilt the numbers in one direction or another.
Third, there are different ways to decide
- Whether someone is fully employed, unemployed, or underemployed (either working fewer hours than full-time or working in a lesser position), and
- Whether someone is part of the potential work force or not. Are they of working age and fit to work, mentally and physically? Are they actually looking for work?
Since there are different ways to answer these questions, the BLS offers several ways of measuring unemployment, from U1 to U6. These are the 3 most important:
- U1: The narrowest measure of unemployment.
- Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
- U3: The standard measure–the one reported in the news
- Total unemployed, as a percent of the civilian labor force
- These are people who are without jobs and have actively looked for work within the past four weeks
- U6: The broadest, most comprehensive measure
- Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
These numbers usually go up and down in sync, but not always. When the job market gets stronger, some people move off the sidelines and begin hunting for jobs again. If they don’t find them right away, their failure actually increases the U3 unemployment number (since they had not been counted as unemployed when they were not actively looking).
Since we mostly hear about the U3 rate, it is important to understand who is not included. If I were laid off, age 39 as the Chicago White Sox backup shortstop and stopped looking for work because I knew nobody was hiring 39 year-old shortstops, I would not be counted as unemployed. Why? Because I wasn’t looking for work.
If I decided, as a last resort, to work 10 hours a week coaching a high-school baseball team, I would be counted as employed, even though I wanted to work 40 hours. So, the U3 rate leaves out some people that you or I might consider “unemployed” or “underemployed.”
To get this larger picture, you can look at a more comprehensive measure, such as U5 or U6.
Fortunately, the numbers on all these measures is good and getting better. Here are the seasonally-adjusted numbers.
Here is the ten-year trend for U3, showing the drastic rise with the financial crash and the steady improvement since unemployment peaked in late 2009. If GDP growth had been stronger, the numbers might have been better sooner. But the Obama Administration can rightly look at this steady improvement in employment numbers and tout it as a major achievement.♦♦♦♦♦♦♦♦