Calculating Unemployment

[pinqy]

Mr. Trump criticized the unemployment rate as fake. Presidential candidate Trump also called them phony. President Trump accepts them without question. So let's talk about how the numbers are calculated and why.

First, tracking employment is fairly easy...there are tax records and businesses can be surveyed cheaply. The official numbers come from a survey of 634,000 establishments every month. Every January they're benchmarked to the unemployment insurance tax records.

But that tells us nothing about unemployment. But we have to define unemployment. Why do we want to measure it? The government wants to know by how much the economy is short jobs. But to look at that we need to know who could be working and how they're affected by the economy. So the concept of the Labor Force was invented. The Labor Force consists of everyone who is participating in the Labor Market..people actively involved in work and the competition for jobs.

Not all groups have free exit or entry to the labor force, so their participation is not affected by economic conditions. So we exclude those who are under age 16 (it used to be 14), we exclude people in prison, the military, and those who are in institutions like nursing homes and mental hospitals. That gives us the Adult Civilian Noninstitutional Population....those who might be working or trying to work.

The Population is then divided into two groups...the labor force and not in the labor force. The labor force are those who are working, and those who are trying to work. And Not in the Labor Force are those not trying to work.

Every month the Census interviews approximately 60,000 households (around 110,000 people). Each state is divided into Primary Statistical Units, roughly county size, and these PSUs are grouped into strata based on similarity of population and economy. At random, with probability proportionate to population size, one PSU is selected from each stratum. Many strata have only one PSU in them, giving them certainty of selection. That will be place like Chicago, New York City, Boston, etc, where leaving them out would distort the picture for that state. Then the stratum is divided into Ultimate Housing Units..basically similar neighborhoods are grouped together in the list and then individual addresses are randomly selected from each group. Houses/apartments are in the survey for 4 months, out for 8 months, and then back in for 4. Each month consists of 8 panels where each panel is in a different month of their participation. This ensures that 3/4s of the sample are the same from one month to the next, and that half the sample is the same for the same month in two consecutive years.

The first month and the 13th month are in person visits and the other months have the option of a phone interview. One person in each household answers for everyone age 15 and older. People are asked if last week they owned a business or farm...if they worked at least one hour for pay or at least 15 hours unpaid in a family-run business/farm. if yes to any of those, or if they have a job but didn't work that week because of vacation, weather, temporary illness or injury, or a strike, then they are employed.

If no, they are asked what they did to look for work in the last 4 weeks, and if they have started a job last week. The reasoning is that these are the people trying to work that particular month and who could reasonably be working if there were enough jobs. These are the Unemployed. If someone was only temporarily laid off and expects to go back to work soon they are considered unemployed whether or not they looked for work.

Those not working or trying to work are "not in the Labor Force." These are the people who would not be working even if there were jobs because they made no attempt to.

The Labor Force Participation Rate is the Labor Force as a percentage of the population. This tells us how much of the population is available for work. The Unemployment rate is the unemployment level divided by the labor force. This tells us how much available labor is not being used.

Questions? Comments? Random insults?

 

[Chomsky]

Very nice, informative piece.

No cites or references unfortunately, but I found it nicely explanatory (if accurate).

So I guess there's nothing left to do, but randomly insult you:

"Your mother wears combat boots"

There! :2razz:

 

[ttwtt78640]

So a trained welder now working a a pizza delivery guy has no effect? How about someone that must drive 30 miles (each way) to keep working? Finding a (any?) job is not that hard, finding a better paying job close to where one lives can be another matter altogether.

 

[Carjosse]

So a trained welder now working a a pizza delivery guy has no effect? How about someone that must drive 30 miles (each way) to keep working? Finding a (any?) job is not that hard, finding a better paying job close to where one lives can be another matter altogether.

The problem with that is it would be incredibly hard to not only measure but create a meaningful statistic. The point of the unemployment rates are to give an overview.

 

[bubbabgone]

Mr. Trump criticized the unemployment rate as fake. Presidential candidate Trump also called them phony. President Trump accepts them without question. So let's talk about how the numbers are calculated and why.

...

Those not working or trying to work are "not in the Labor Force." These are the people who would not be working even if there were jobs because they made no attempt to.

The Labor Force Participation Rate is the Labor Force as a percentage of the population. This tells us how much of the population is available for work. The Unemployment rate is the unemployment level divided by the labor force. This tells us how much available labor is not being used.

Questions? Comments? Random insults?

We already did this early in March ...

Can a lower labor participation rate result in a lower unemployment rate?

No. They can both happen together, but the lower UE rate would NOT be a result of the participation rate going down.

the participation rate can go down because:
The labor force level goes down and the population goes up. In this case, if unemployment goes up, stays the same, or doesn't go down as fast as the LF, then the UE rate will go UP. If the UE level goes down faster, then the UE rate will go down
The labor force level goes down faster than the population goes down. In this case, if unemployment goes up, stays the same, or doesn't go down as fast as the LF, then the UE rate will go UP. If the UE level goes down faster, then the UE rate will go down
The labor force level goes up and the population goes up faster. In this case, if unemployment goes down, stays the same, or doesn't go up as fast, then the UE rate will go DOWN. If the UE level goes up faster, then the UE rate will go up.

What connection of the labor force going down CAUSING the UE rate to go down?

So if all else remains constant but a whole lot of people leave the work force, what would happen to the unemployment rate.

No idea. It depends on the distribution of unemployed and employed leaving the labor force. If a larger percentage of employed leave, the UE rate will go the rate will go up. If a larger percentage of unemployed leave, the rate will go down.

You really love this topic.
Are you still trying to suggest the LP rate has no effect on the UE rate?

 

[ttwtt78640]

The problem with that is it would be incredibly hard to not only measure but create a meaningful statistic. The point of the unemployment rates are to give an overview.

I understand, yet one can be (and often is?) both working and looking for better work.

 

[Carjosse]

I understand, yet one can be (and often is?) both working and looking for better work.

That is why it is not a meaningful measure nor something that can accurately be measured. I would say most people are looking for better work, they have no reason not to. I doubt very many people just work their job without an inclination of looking for better work, especially if they are younger.

 

[<alt>doxygen]

So a trained welder now working a a pizza delivery guy has no effect? How about someone that must drive 30 miles (each way) to keep working? Finding a (any?) job is not that hard, finding a better paying job close to where one lives can be another matter altogether.

True. However, when technology or misc. market forces cause the job for which you trained to go away and you want to work, it's on you to either move where there are jobs suited to your training or find a different skill set to exploit where you are presently living. The government is not responsible for making sure you have the job you want in the town where you want to live, nor is it's the government's job to train you beyond basic education. Seems a lot of people voted for Trump not wanting to accept that basic concept.

 

[ttwtt78640]

True. However, when technology or misc. market forces cause the job for which you trained to go away and you want to work, it's on you to either move where there are jobs suited to your training or find a different skill set to exploit where you are presently living. The government is not responsible for making sure you have the job you want in the town where you want to live, nor is it's the government's job to train you beyond basic education. Seems a lot of people voted for Trump not wanting to accept that basic concept.

I think that you have misinterpreted my point. I am not blaming the government in any way for those in under-employment situations - I am simply pointing out that an oversimplified way of looking at one's employment status is being used. You can be both working and looking for better work - having a (any?) job does not mean that you are not looking for a better job. I have many skills and thus can always find work but an hour of lawn mowing does not pay as much as an hour of plumbing and a job site close by is preferred over one 25 miles away.

 

[<alt>doxygen]

I think that you have misinterpreted my point. I am not blaming the government in any way for those in under-employment situations - I am simply pointing out that an oversimplified way of looking at one's employment status is being used. You can be both working and looking for better work - having a (any?) job does not mean that you are not looking for a better job. I have many skills and thus can always find work but an hour of lawn mowing does not pay as much as an hour of plumbing and a job site close by is preferred over one 25 miles away.

Noted, and I agree.

These things can work the other way, too. My wife has a masters and multiple certs, was a project manager making north of six figures, and is now a much happier yoga teacher. On paper, she looks under-employed, but she's doing what she wants. Yes, I know that's not the norm, but the gov. stats don't intend to figure those things out. As noted by another poster - the stats are to provide an overview.

 

[radcen]

Mr. Trump criticized the unemployment rate as fake. Presidential candidate Trump also called them phony. President Trump accepts them without question.

<remainder truncated for brevity>

To me, this is the bigger issue. Not the numbers themselves, which I believe most people know the gist that they're imperfect, but rather the outright deceit in depiction. But even deeper than that, said people who know better accepting and defending said deceit.

Why is it so hard for a Trump supporter to see two diametrically opposed comments on the same topic to suck it up and say, "Yeah, he's not correct on one of those."?

 

[Chomsky]

So a trained welder now working a a pizza delivery guy has no effect? How about someone that must drive 30 miles (each way) to keep working? Finding a (any?) job is not that hard, finding a better paying job close to where one lives can be another matter altogether.

The trouble with that is, they'd have to come-up with a qualitative factor, which sounds to me like a nearly undoable mess! :shock:

Plus the Q factor would need constant updating to accommodate the changes of time and technology.

 

[ttwtt78640]

The trouble with that is, they'd have to come-up with a qualitative factor, which sounds to me like a nearly undoable mess! :shock:

Plus the Q factor would need constant updating to accommodate the changes of time and technology.

Perhaps that is a bit too much to ask of a U.S government survey yet the UI folks don't even demand that you take a job offer significantly below your prior pay grade.

 

[pinqy]

Very nice, informative piece.

No cites or references unfortunately, but I found it nicely explanatory (if accurate).

So I guess there's nothing left to do, but randomly insult you:

"Your mother wears combat boots"

There! :2razz:

You hurt my feeling.

You are correct that I was negligent in not giving references. https://www.bls.gov/cps/documentation.htm is the technical documentation. Some are for the layman (how the government measures unemployment) Some are for professionals (handbook of methods) and technical paper 66 make PhDs shudder at the thought of reading it.

 

[pinqy]

We already did this early in March ...


You really love this topic.
Are you still trying to suggest the LP rate has no effect on the UE rate?

If the Labor Force Participation rate goes from 62.7% to 63%, what will the Unemployment Rate do? Not what could it do, but what will it do?
I'll help....the participation rate is (E + U)/(E+U+N) and the Unemployment rate is U/(E+U)
E= Employed
U= Unemployed
N=Not in the Labor Force

There is no causal relationship.

 

[expat_panama]

...it so hard for a Trump supporter to see two diametrically opposed comments on the same topic to suck it up...

Politics works that way, it's a forum where we decide that all members of the other side are dumb and only we are the good guys. In business we have to be a lot more careful with econ numbers because any disconnect between belief and reality can be very expensive.

Employment trends that are relevant to business planning are say, employment/population ratios, gdp growth rates, and part time % levels, all of which took a serious hit about 8 years ago and have yet to recover. At the same time there's much room for optimism. Anyone who says that the superiority of econ policies from '08-'16 are proven by unemployment rates will eventually see this--

--and decide that there's more to a growing economy that can be seen w/ mere unemployment rates.

 

[bubbabgone]

If the Labor Force Participation rate goes from 62.7% to 63%, what will the Unemployment Rate do? Not what could it do, but what will it do?
I'll help....the participation rate is (E + U)/(E+U+N) and the Unemployment rate is U/(E+U)
E= Employed
U= Unemployed
N=Not in the Labor Force

There is no causal relationship.

The U.S. Bureau of Labor Statistics (BLS) classifies all persons over the age of 16 as “unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.” The labor force is defined by the BLS as “all persons classified as employed or unemployed.” The unemployment rate is then calculated by dividing the total number of unemployed by the total labor force. (See also: How Is Unemployment Defined?).

From this we can see that there are a number of ways in which the unemployment rate could fall. First, the most obvious way is that unemployed persons find a job and become employed. Labor force participation remains the same, while the number of unemployed decreases and the number of employed increases.

The second way is that people not currently counted in the labor force become employed. It is always possible for someone not actively looking for work to accept a job offer. As this would cause an increase in the total labor force while the number of unemployed remains unaffected, the unemployment rate would fall.

Finally, the unemployment rate could fall because those who were once considered unemployed stop looking for work, and leave the labor force altogether. These people may want work and are available to work but have given up looking. As both the number of unemployed and total labor force decrease in such a situation, it may not be obvious that the unemployment rate actually goes down. But considering the most extreme example of all those currently unemployed leaving the labor force, no matter how low the total labor force falls, the unemployment rate falls to zero.

How Labor Force Participation Rate Affects U.S. Unemployment | Investopedia

 

[pinqy]

How Labor Force Participation Rate Affects U.S. Unemployment | Investopedia

If the Labor Force Participation rate goes from 62.7% to 63%, what will the Unemployment Rate do? Not what could it do, but what will it do?
I'll help....the participation rate is (E + U)/(E+U+N) and the Unemployment rate is U/(E+U)
E= Employed
U= Unemployed
N=Not in the Labor Force

There is no causal relationship.
Unemployed leaving the labor force will affect both the UE rate and the Participation rate, but that is only one of many possible results.

 

[bubbabgone]

If the Labor Force Participation rate goes from 62.7% to 63%, what will the Unemployment Rate do? Not what could it do, but what will it do?
I'll help....the participation rate is (E + U)/(E+U+N) and the Unemployment rate is U/(E+U)
E= Employed
U= Unemployed
N=Not in the Labor Force

There is no causal relationship.
Unemployed leaving the labor force will affect both the UE rate and the Participation rate, but that is only one of many possible results.

"Finally, the unemployment rate could fall because those who were once considered unemployed stop looking for work, and leave the labor force altogether. These people may want work and are available to work but have given up looking. As both the number of unemployed and total labor force decrease in such a situation, it may not be obvious that the unemployment rate actually goes down. But considering the most extreme example of all those currently unemployed leaving the labor force, no matter how low the total labor force falls, the unemployment rate falls to zero."

It's obvious and intuitive to everyone.

 

[pinqy]

"Finally, the unemployment rate could fall because those who were once considered unemployed stop looking for work, and leave the labor force altogether. These people may want work and are available to work but have given up looking. As both the number of unemployed and total labor force decrease in such a situation, it may not be obvious that the unemployment rate actually goes down. But considering the most extreme example of all those currently unemployed leaving the labor force, no matter how low the total labor force falls, the unemployment rate falls to zero."

It's obvious and intuitive to everyone.

But that does NOT establish a CAUSAL relationship between the participation rate and the UE rate.

Both can go down together, as you showed. But they can also move in opposite directions.

And, from your example, it could easily be viewed as the unemployment rate affecting the participation rate.

 

[bubbabgone]

But that does NOT establish a CAUSAL relationship between the participation rate and the UE rate.

Both can go down together, as you showed. But they can also move in opposite directions.

And, from your example, it could easily be viewed as the unemployment rate affecting the participation rate.

It shows one reason for a decline in the UE rate.
One way in which the LP rate can effect the UE rate.
My link showed the effect of the LP rate on the UE rate as one of the "... number of ways in which the unemployment rate could fall".

If you still don't accept that I can't rephrase it any other way so there's no chance you can be convinced.

 

[pinqy]

It shows one reason for a decline in the UE rate.

One that also causes a change in the participation rate. The CAUSE is a drop in the unemployment level while the employment level either also goes down or goes up by less. That makes both the UE rate and the LFP rate go down.

One way in which the LP rate can effect the UE rate.

It's not. It's the same thing affecting both rates, not one rate affecting the other.

My link showed the effect of the LP rate on the UE rate as one of the "... number of ways in which the unemployment rate could fall".

No it did not. It showed one thing which can cause both to drop.

I don't see what's unclear. A change in the Participation Rate does not CAUSE a change in the Unemployment rate, but they are both affected by the same factors.