Data Deep Dive: Beyond the Unemployment Rate

Data Deep Dive: Beyond the Unemployment Rate

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How the economy is doing is critically important to anyone embarking on a career or seeking to move forward on the career path.

Conventional wisdom points to the unemployment rate as a sign of the health of the economy, making the latest unemployment figures a compelling draw.

The financial fallout from unemployment represents hardship for most people and it’s natural to gravitate towards that data for information about the state of the economy.

Those numbers don’t tell the whole story, but the monthly jobs report doesn’t stop at the unemployment rate.

More information than the unemployment rate is offered in the report to help you gain a more complete understanding of the state of the economy.

The Monthly Jobs Reports: An Overview

Each month, the United States Bureau of Labor Statistics releases a wealth of data about employment and unemployment, using data gathered by the Census Bureau’s Current Population Survey. The population survey is based on interviews with about 60,000 people every month, covering the civilian, non-institutional, population aged 16 and up, including those who are self-employed.

One figure dominates the conversation when the report is published and that’s the unemployment rate. Policy makers, businesses, and individuals, use the unemployment rate when making decisions, relying on it as a marker of trends in the economy. Unemployment patterns help them in tracking economic cycles and to identify periods of recession and signs of recovery.

But the unemployment rate is only one indicator of how the economy is faring. In addition to the unemployment rate, BLS covers additional factors that help account for “labour underutilization”.  To understand more fully what the monthly report can and can’t tell us about how the work force is managing, it’s essential to understand how the data is organized.

Unemployment Rates: What Do They Really Mean?

A person isn’t necessarily counted as unemployed simply because they don’t have a job.  According to the official definition of unemployment, the person must also be available for work, and have actively looked for work in the past four weeks. A person who isn’t unemployed by this definition, or employed, is not considered part of the labor force.

Generally, low and decreasing unemployment rates are considered a positive sign for the economy. But many significant parts of the labor market are not captured in the data. For example, part-time workers who would rather – or need to — work full-time, are considered employed, and discouraged people who have given up on the job search aren’t counted at all. Such gaps in the statistics make the unemployment rate an incomplete marker of the economic situation, distorting the full picture.

But the unemployment report also contains measures apart from the unemployment rate, that contribute to a clearer understanding of the state of the labor market.

Alternative Measures of Labor Underutilization

Elsewhere in the survey, the CPS asks for more information from the respondents than whether they are working or not working. People are also asked how long they have been out of work; how recently they searched for work; if they are part-time, why are they not working full-time; why they may have chosen not to look for work; and why people with jobs may not have been working during the survey period.

With the additional information, six different measures of labor under-utilization can be calculated.  In categories labeled from U-1 to U-6, the CPS includes narrower and broader parameters than the official unemployment rate (known as U-3 in the system).

The broadest category is U-6, which includes “marginally attached” workers, including discouraged workers and those who are looking for work but didn’t meet the official definition of unemployed, and involuntary part-time workers. The U-6 figure usually runs three to seven percent higher than the regular unemployment rate, but it typically follows the same pattern.

Employment-Population Ratio

The employment-population ratio measures employed people as a percentage of the adult population, or civilian non-institutional people over 16 years of age. This metric also captures people not included in the unemployment rate, such as those too discouraged to look for work. During the coronavirus pandemic, that may also include people not looking for work for fear of contracting the virus.

The employment-population ratio is less affected by seasonal variations or short-term fluctuations in behaviour than the unemployment rate. The calculation is impacted by people who retire or decide to go back to school, leading many economists to focus on the age group in the 25-54 category, which eliminates most retirees and students.

Labor Force Participation Rate

Another measure of the labor market found in the unemployment report is the labor force participation rate, which looks at the share of the adult population that is working or actively looking for work as a percentage of the whole population. People who have stopped actively looking for work are included in the formula.

The labor force participation rate in the United States has been in steady decline since it peaked in 2000, partly, but not entirely, explained by retiring baby boomers.

Coronavirus Math

The unemployment report during the coronavirus presents a challenge to the statisticians who prepare it, and it will probably be more challenging for the rest of us to interpret than the typical monthly report. For example, millions of people who are temporarily laid off due to the pandemic measures are still counted as employed. Many people who were permanently laid off may not be looking for work, due to being discouraged at current prospects for employment, or for fear of being exposed to the virus. They wouldn’t be included in the unemployment rate.

Many people still have jobs, but are working fewer hours, decreasing their income. Like discouraged workers, they wouldn’t be included in the unemployment rate, but the impact on the economy – and signs of the future recovery — may be tracked in the other measures contained in the report.


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