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The Economist

Tucker Hart Adams //December 1, 2009//

The Economist

Tucker Hart Adams //December 1, 2009//

The most closely watched but least useful statistic on the state of the economy is the unemployment rate. Early each month, the Bureau of Labor Statistics issues a report, and the headline usually focuses on the change in the unemployment rate.

We all fall into one of three categories – employed, unemployed or not in the labor force. If you are under 16 (there is no upper limit), confined to an institution (nursing home, prison, etc.) or a member of the Armed Forces, you aren’t in the labor force. You are also excluded if you have no job and aren’t looking for one – for example, because you are in school, retired or have family responsibilities.

You are employed if you work for pay or profit (full-time or part-time). You are also considered employed if you work without pay for 15 hours or more per week in a family-owned enterprise operated by someone in your household.

You are unemployed if you do not have a job, have actively looked for work in the past four weeks and are currently available for work. If you have a job but are on vacation, sick, experiencing child-care problems, taking care of a personal or family obligation, on maternity or paternity leave, involved in a labor dispute or unable to get to work because of bad weather, you aren’t counted as unemployed, even if you weren’t paid.

There are two places where a cursory look at the data can be very misleading. The first has to do with employment. If you lose a terrific six-figure job with great benefits and go to work part-time at minimum wage with no benefits, your employment status is unchanged.

If you dig through the BLS data you will find statistics on the number of people working part-time for economic reasons (they wanted but were unable to find a full-time job), but that is seldom mentioned in the media reports. At the end of the third quarter there were 9.2 million workers in this category, almost 3 million more than there were a year earlier.

The second misleading figure is the unemployment rate. At first glance, it looks simple – you have a job, don’t want a job or are looking for a job and hence unemployed. The catch is that to be considered unemployed you must have actively looked for a job in the past four weeks. This means you requested or had a job interview, contacted an employment agency or an employment center, sent out resumes, placed or answered job ads, etc.

If you were out of work but did none of those things, the government counts you as no longer in the labor force. Whether you are receiving unemployment benefits is irrelevant, as is attending a job-training program or reading about job openings.

Digging deeply into the unemployment statistics turns up a category referred to as individuals marginally attached to the labor force. There were 2.2 million thus classified at the end of the third quarter, up 39 percent from a year earlier. These are people who wanted and were available for work and had looked for a job in the previous 12 months, but not in the last four weeks. Thus, they were not in the labor force or the unemployment statistics.

The BLS actually provides six measures of unemployment, but you have to go to page 11 of the 21-page news release to find it. The broadest measure, which includes the marginally attached workers and those working part-time because they can’t find a full-time job, was 17 percent at the end of the third quarter – up from 11.2 percent a year earlier. This comes closer to providing an accurate picture of the economic distress we are experiencing that what we usually hear about.

Employment data come from a monthly survey of about 60,000 households conducted by 2,200 highly trained Census Bureau personnel. A household remains in the survey for four months. Sample data aren’t perfect, but there is a 90 percent chance that the error is extremely small and provides a useful picture of the job situation – if it is read with care.

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