The official unemployment rate used by the U.S. government and published by the Bureau of Labor Statistics (BLS) is the U-3 rate. This is the percentage of the total labor force that is unemployed and has actively sought employment within the past four weeks. The number of people receiving UI and the number counted as unemployed do tend to move in the same direction, but there is no formal link between the two.
Compiling Labor Statistics
The unemployment rate is reported by the BLS on the first Friday of each month. It is useful to compare this month’s unemployment rate to that of the same month last year, or year-over-year, to rule out the effects of seasonal unemployment. If you only compare this month’s unemployment rate to last month’s, it could be higher because of something that always happens that month, such as the school year ending.
Sign of Economic Distress
The year-over-year unemployment rate will tell you if unemployment is worsening. If more people are looking for work, less people will be buying, and the retail sector will decline. Also, if you are unemployed yourself, it will tell you how much competition you have, and how much leverage you might have in negotiating for a new position. In addition, central banks carefully try to predict the future trend of the unemployment rate to devise long-term strategies to lower it. The unemployment rate is determined at the national level and at state or regional levels via labour-force surveys conducted by the national statistical institute in each country. Low unemployment is not considered healthy, as lower rates can be seen as inflationary due to pricing pressure on salaries; however, high unemployment is not considered healthy, as higher rates can be seen as a financial strain on consumer spending.
The official unemployment rate that is widely quoted in the media and other news sources in the U.S. is based on the above definition of unemployment. People are considered employed if they did any work for pay or profit during the survey week. People are also counted as employed if they have a job at which they did not work during the survey week, for reasons such as being on vacation, falling ill, doing some personal work, etc. In order to understand competitive, consistent institutional trading the causes and the remedy for high levels of unemployment, policymakers seek information on different aspects of unemployment.
The surveys include industry information, occupations, average earnings, and union membership. For those who are jobless, interviewers also ask whether they quit or were fired or laid off. Gallup notes that an engineer or any other skilled professional who takes a low-paying part-time job to survive would not be counted in the official unemployment rate, even if they make as little as $20 a week. The U-6 rate, on the other hand, factors in this marginally attached percentage of the labor force in its unemployment calculation. The portion of the unemployed that has not looked for a job in the past four weeks is defined as “marginally attached” and no longer counted as unemployed.
The survey excludes individuals under the age of 16 and those who are in the Armed Forces. People in correctional facilities, mental healthcare facilities, and similar institutions are also excluded. The U-3 number does not include any of those people, but the U-6 rate does. The U-6 rate offers a broader understanding of the true health of the economy.
How are individuals in the monthly survey identified as being unemployed?
There are various ways to calculate unemployment, however, the general public is most familiar with the U-3 rate. The calculation for this iteration of the unemployment rate is to divide the number of unemployed individuals by the total workforce. The payroll (or establishment) survey is a survey of 145,000 businesses—employing about one third of all workers on nonfarm payrolls. The payroll survey tends to have difficulty when the economy is at a turning point, as is the case now.
Respondents who did not work but are on temporary layoff from a job with the expectation that they will be recalled—as many furloughed employees are today—are counted as unemployed whether they looked for a job or not. The unemployment rate is the current portion of the labor force that is without work. The Bureau of Labor Statistics maintains historical unemployment data going back to 1948.
Unemployment and the Economy
It is thus advisable to look beyond the headline U-3 unemployment number as it may not convey the whole story. The U-6 measure, by being the least restrictive and therefore the highest unemployment rate, may provide a truer picture of the degree of labor underutilization. Obviously, the unemployment rate is important as a gauge of joblessness. Retraining these workers can be difficult, costly, and time-consuming.
- In addition, part-time workers are added to the numerator only, since they have already been included as part of the labor force.
- We know about these forecast errors because the BLS revises the data based on more complete information.
- If more people are looking for work, less people will be buying, and the retail sector will decline.
- Respondents to the survey are first asked whether they worked during the week that includes the 12th of the month.
- The payroll survey tends to have difficulty when the economy is at a turning point, as is the case now.
In addition, the U-3 rate does not include any workers who are employed but have had their work hours reduced. When companies are trying to cut costs, they often reduce their workforce as one of their cost-saving measures. Those workers who are left to do more work after a company lays off part of their staff are not likely to receive any additional compensation for the extra hours they are working. Unemployed workers also lose their purchasing power, which can lead to unemployment for other workers, creating a cascading effect that ripples through the economy. In this way, unemployment even impacts those who are still employed. Bureau of Labor Statistics (BLS), when workers are unemployed, their families lose wages, and the nation as a whole loses its contribution to the economy in terms of the goods or services that could have been produced.
A simpler measure is the employment-to-population-ratio (EPOP), a ratio of the number of people employed to the number of people in the population. The EPOP, which stood at 61.1 percent on the eve of the pandemic, declined by 9.8 percentage points between February and April—the largest decline since the series began in January 1948. Although the EPOP has recovered somewhat, to 57.5 https://forexanalytics.info/ percent, it still stands at its lowest level since the early 1980s, a time when far fewer women were in the labor force.
Collecting Data
But the number of UI claimants does not provide accurate information on the extent of unemployment. This is because people may still be jobless after their benefits run out, while other applicants for UI benefits may not be eligible for benefits or may not even have applied for them. The U.S. Census conducts a monthly survey called the Current Population Survey (CPS) on behalf of the Bureau of Labor Statistics (BLS) to produce the primary estimate of the nation’s unemployment rate. Many governments offer unemployment insurance to certain unemployed individuals who meet eligibility requirements. Preventing and alleviating cyclical unemployment during recessions is one of the key reasons for the study of economics and the various policy tools that governments employ to stimulate the economy on the downside of business cycles.
One measure of the unemployment rate that includes individuals out of the labor force but also accounts for this variation in the propensity to return to work is the Hornstein-Kudlyak-Lange non-employment index, which was 9.3 percent in January. The U-6 measure provides the broadest measure of labor underutilization. In assessing an economy’s health, the nation’s unemployment rate plays a major factor in setting monetary policy and making strategic economic decisions.
The CARES Act, for instance, added $600 a week to weekly unemployment insurance benefits through the end of July 2020, preventing many families from falling into poverty, and the December extension provided for an additional $300. And, of course, Congress provided two rounds of one-time payments for most families—$1,200 per adult and $500 per dependent child in the spring of 2020 and another $600 per individual in December, with payments phasing out for higher earners. Estimates suggest that about 13 million people were prevented from falling into poverty by these efforts.
