What The Unemployment Rate Doesn't Tell Us

By Amy Fontinelle | June 03, 2009 AAA
What The Unemployment Rate Doesn't Tell Us

The Current Population Survey (CPS) conducted by the U.S. Bureau of Labor Statistics (BLS) is a key source of data on U.S.unemployment. The national unemployment rate is derived from this survey and is the number most commonly touted by the media to summarize the state of the economy and its workers.

But it doesn't tell the whole story. (Think you're about to get the ax? Read Planning For Unemployment for tips on how to cope.)
What It Says
According to the BLS website, the CPS counts the following people as employed:

  • All persons who worked for pay or profit during the survey reference week.
  • All persons who did at least 15 hours of unpaid work in a family-owned enterprise operated by someone in their household.
  • All persons who were temporarily absent from their regular jobs, whether they were paid or not (this includes persons who were on vacation, ill, experiencing child-care problems, dealing with family or personal obligations, on maternity or paternity leave, involved in an industrial dispute, or prevented from working because of bad weather).

What It Doesn't Say
Clearly, the CPS is an important measure, but it can't tell us everything about the state of unemployment in the U.S. So, what's missing?

1. Whether workers have full-time hours.
The CPS counts people as employed if they are working at part-time or temporary jobs, regardless of the number of hours worked or whether this employment represents a sufficient or ideal employment situation for that worker. If a laid-off consultant works 10 hours at McDonald's, he would be counted as employed, but this employment is probably neither sufficient to pay his bills, nor ideal for him or society as a whole given that he is qualified to do more challenging, more productive and higher-paying work. (For more tips on how to survive a layoff, read Laid Off? You Can Still Retire and Losing Your Job: From A To Z.)

2. Whether workers are "underemployed".
The consultant working at McDonald's gives us an example of something else that is not measured by the unemployment rate: underemployment, or working at a job that requires fewer skills and offers lower pay than the best jobs for which a worker is qualified. Our consultant would also be considered an involuntary part-time worker - yet another factor the unemployment rate does not consider.

3. Whether a worker has given up looking for a job, even though he or she needs one.
The BLS only counts as unemployed those who "do not have a job, have actively looked for work in the prior four weeks, and are currently available for work." If you have a cold (known as a "temporary illness"), you are still considered available for work by the survey. However, if the state of the economy is so bad that you become depressed about losing your job, or your recent attempts at job searching have been so futile that you haven't even tried to get a new job in the last four weeks, you are no longer considered unemployed: you become "marginally attached" to the workforce or a "discouraged worker" and are no longer counted in the unemployment rate. Other people not considered part of the labor force include prisoners, people confined to nursing homes, members of the Armed Forces on active duty, homemakers, students and retired persons.

4. What the unemployment numbers mean in context.
Another problem with the unemployment rate is that it cannot be used to accurately compare unemployment levels from different years. According to a report by economists John Schmitt and Dean Baker of the Center for Economic and Policy Research, it is difficult to accurately compare, for example, the unemployment rate in 1982 versus the unemployment rate in 2009 because of changes in the age makeup of the population. A younger population, they state, will result in a higher unemployment rate because "the young change jobs more frequently and are more likely to move in and out of the labor force." Further, government methods of measuring the unemployment rate may change over time, as they did in 1994 when the BLS overhauled the CPS, changing its questionnaire and some of its labor-force concepts.

These are just a few of the problems with relying too heavily on the national unemployment rate as a meaningful indicator of the state of the economy and its workforce. Unfortunately, this often means that the true percentage of people who don't have jobs or aren't making enough money is often worse than the official unemployment rate suggests.

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