15.1 Identifying Unemployment
15.1 a. How is Unemployment Measured?
Since it is impractical to count every unemployed person each month, the government conducts a monthly survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. There are about 60,000 eligible households in the sample for this survey. This translates into approximately 110,000 individuals each month. The CPS sample is selected so as to be representative of the entire population of the United States. Every month, one-fourth of the households in the sample are changed so that no household is interviewed for more than 4 consecutive months. A sample is not a total count, and the survey may not produce the same results that would be obtained from interviewing the entire population. But the chances are 90 out of 100 that the monthly estimate of unemployment from the sample is within about 300,000 of the figure obtainable from a total census [1].
The basic concept of the survey on employment and unemployment is [1]:
- People with jobs are employed
- People who are jobless, looking for a job, and available for work are unemployed
- The labor force is made up of the employed and the unemployed.
- People who are neither employed nor unemployed are not in the labor force.
Other important labor market statistics are developed using the basic survey estimates of people employed, unemployed, and not in the labor force. These statistics include [1]:
- The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.
- The national unemployment rate. Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force.
- The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian non institutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work.
- The employment-population ratio. This measure is the number of employed as a percentage of the civilian non institutional population 16 years old and over. In other words, it is the percentage of the population that is currently working.
Example [2]:
To determine the percentage in the labor force:
Step 1. Divide the number of people in the labor force (154.9 million) by the total adult (working-age) population (243.2 million).
Step 2. Multiply by 100 to obtain the percentage.
Percentage in the labor force=154.9/243.2 *100
Percentage in the labor force=0.6369 *100
Percentage in the labor force=63.7 percent
To determine the percentage out of the labor force:
Step 1. Divide the number of people out the labor force (88.3 million) by the total adult (working-age) population (243.2 million).
Step 2. Multiply by 100 to obtain the percentage.
Percentage in the labor force=88.3/243.2 * 100
Percentage in the labor force=0.3631 * 100
Percentage in the labor force=36.3 percent
To determine the unemployment rate:
Step 1. Divide the number of unemployed people (12.5 million) by the total labor force (154.9 million).
Step 2. Multiply by 100 to obtain the rate.
Unemployment rate=12.5/154.9
Unemployment rate=0.0807
Unemployment rate=8.1 percent
Calculating Unemployment [3]
15.1 b. Does the Unemployment Rate Measure What We Want It To?
The official unemployment rate has often been cited as being too restrictive and not representative of the true breadth of labor market problems. Some analysts contend that the official unemployment measure is too broad, and they would like a more narrowly targeted measure. However, they are in the minority, far outnumbered by those who believe that the unemployment rate is too narrowly defined, as a result of which the full dimensions of the unemployment problem are understated [4].
To address these issues, the BLS in 1976 introduced a range of labor market measures entitled U-1 through U-6. The measures range from U-1 – which is the most restrictive, since it only includes those people who were jobless for at least 15 weeks – to U-6, the broadest definition of labor underutilization. The U-3 measure is the official unemployment rate. U-1 and U-2 are more restrictive and therefore lower than U-3, while U-4, U-5 and U-6 are higher than U-3 [4].
The U-6 measure provides the broadest measure of labor underutilization. It is defined as the total unemployed populace, plus all marginally attached workers, plus all persons employed part-time for economic reasons, as a percentage of the civilian labor force plus all marginally attached workers [4].
“Marginally attached” workers are defined as persons without jobs who are not currently looking for work (and hence not considered unemployed) but who have demonstrated some degree of labor force attachment. Discouraged workers are those who are not currently looking for work because they [4]:
- Believe that no job is available to them in their line of work;
- Have been unable to find work;
- Lack the necessary schooling, skills or experience; or
- Face some form of discrimination from employers (for example, being too young or too old).
Example: A sales executive with a family to support and bills to pay has been unable to find full-time work after six months of unemployment. He finally takes up a three-month contract that entails only six hours of work a week. While the U-3 measure would consider him as employed, the U-6 measure would take his obvious degree of underemployment into consideration [4].
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What is Unemployment? [5]
15.1 c. How Long Are the Unemployed without Work?
Short-term unemployment is considered any unemployment period that lasts less than 27 weeks. The unemployment period is temporary and often includes the time needed to switch from one job to another. Also, if an individual is searching for employment the search period is relatively short [6].
Long-term unemployment is classified as unemployment that lasts for 27 weeks or longer. Being unemployed for a long period of time can have substantial impacts on individuals. Jobs skills, certifications, and qualifications lessen over time. When the job market finally increases many individuals will no longer match the requirements for the new positions. Long-term unemployment can also result in older workers taking early retirement [6].
Example: In November 2017, there were 1.581 million long-term unemployed individuals. The number of unemployed first dropped below two million in May 2015. That means that 23.9 percent of the unemployed had been looking for work for six months or more. That’s better than the record high of 46 percent in the second quarter of 2010 [7].
Long Term Unemployment [8]
15.1 d. Why Are There Always Some People Unemployed?
The two causes of long-term unemployment are cyclical unemployment and structural unemployment. Cyclical unemployment itself is often caused by a recession. Structural unemployment occurs when workers’ skills no longer meet the needs of the job market [7].
Long-term cyclical and structural unemployment feed off of each other. A recession causes a massive rise in cyclical unemployment. Those who can’t find jobs become long-term unemployed. If out of work long enough, their skills become outdated. In time, this contributes to structural unemployment. They have less money to spend, resulting in reduced consumer demand [7].
This further slows economic growth, leading to more cyclical unemployment [7].
Example: John is a type-writer repairman who is unemployed because there are no longer any type-writer to repair.
Long Term Unemployment [9]
