Economic Reports: Unemployment Rate

We know the numbers are important, but how important? And what do they really mean? In a continuing series, we examine major economic reports, answering common questions and pinpointing the true meaning behind the figures.

Pundits, politicians and even people on the street will often talk about the unemployment rate, discussing it as a major indicator of how our economy is faring. So how does it truly work? 

First, the government collects this employment data because of one simple assertion: when workers are unemployed, the individual and the country lose. They lose wages, the country loses potential goods and services, and the economy could suffer. Statisticians look at the extent and nature of the unemployment situation, particularly who is unemployed, and use this data to determine if measures should be taken to influence the economy.

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The Bureau of Labor Statistics (BLS) conducts a monthly sample survey called the Current Population Survey to measure unemployment. The survey consists of about 60,000 households, selected to be representative of the entire population of the US in terms of location, industry, ethnicity, and more. Every month one-fourth of the sample is changed to keep the survey fresh.

Each month BLS officials survey the households on labor or non-labor activities.  Thanks to weighting of individual data, the representative sample is estimated to be nearly 90 percent accurate when compared to the total population. Survey respondents are categorized into three areas. People with jobs are employed; people without jobs who are actively seeking work are unemployed; and people who are neither of the two are not in the labor force. This last category includes people under 16 years of age, inmates of institutions, retired persons, and people on active duty in the Armed Forces.

Statisticians know that total employment and unemployment are higher in some parts of the year. Seasonal fluctuations reflect typical weather patterns (lack of work for agriculture in the winter months; increased employment in June with the end of school) and other patterns. Sometimes it's difficult to tell if month-to-month changes in employment are due to normal patterns or changing economic conditions. To deal with this, the BLS uses a seasonal adjustment technique.

In addition to the national figures, each month the Current Employment Statistics (CES) program surveys about 160,000 businesses and government agencies dispersed throughout the country. This research is conducted to determine detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and over 400 metropolitan areas and divisions.

The national and local figures are released each month to BLS publications and national and local press. From there, the official and unofficial analysis begins. How is our economy doing? Are jobs up or down? Is joblessness affecting certain segments of the population more than others?

Recent figures released for April 2007 show the unemployment rate at 4.5%. According to the Bureau of Labor Statistics, the government agency that releases these numbers, this is an increase of over 77,000 from the previous month. It is this comparison that is most useful for someone deciphering this report. Over a years worth of figures, a greater picture can emerge that pinpoints the state of the nation. For example, the entire unemployment rate in 2006 was 4.6 percent. Comparing April to last year, then, shows little change.

One final consideration. It's often easy to get lost in percentages and anonymous data. That's why the BLS also provides another number - the unemployment level. An unemployment rate of 4.6 percent in 2006 translated to over 7 million people looking for work.

For more information on unemployment rates and methods, visit www.bls.gov/cps/home.htm.

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