Every month, the Department of Labor’s Bureau of Labor Statistics (BLS) releases new unemployment numbers. In December of 2011, the country’s unemployment rate dropped down to 8.5 percent, the lowest that it had been since the first quarter of 2009. On the whole, this is positive news and appears to indicate that the labor economy is gradually recovering. A careful analysis of what goes into the unemployment rate can give a much fuller picture of the employment situation in the United States which is, unfortunately, a bit less rosy.

The unemployment rate is an estimate. Contrary to what many people think, the BLS neither contacts payroll services about changes in the number of paychecks they send out nor polls unemployed people to see if they have jobs. They do not even contact states to see how many unemployment checks they sent out. Instead, they conduct a monthly survey of 60,000 households located in 824 of America’s 2,025 geographic areas as defined by the Census Bureau. The results that they get from the survey determines the national unemployment rate. Although 60,000 households spanning over 100,000 people is much larger than necessary to be a statistically valid sample, there is still the opportunity for some inaccuracy in the rate since it is derived from a small subset of the country as a whole.

To understand the unemployment rate, one needs to understand who, exactly, counts as unemployed. A person without a job is not necessarily unemployed. Furthermore, someone without a job who is not a homemaker or student is not necessarily unemployed. To be unemployed, a person must be without a job, ready and able to work and actively seeking work. People who are neither unemployed nor employed are not considered part of the labor force.

Herein lies the problem with the unemployment rate. It does not measure people who have given up looking for work. The unemployment rate as reported also counts people who have gone from full-time work to part-time work as employed. The ability to not count people can lead to the employment market looking stronger than it actually is.

December’s unemployment rate dropped from 8.7 to 8.5 percent, which appears to be good news. Approximately 176,000 more people were employed than in November, which is also good news. Unfortunately, the population of people over 16 years of age also went up by 143,000. In other words, 81 percent of the jobs created went just to serve new entrants to the labor force. Only 33,000 jobs were left for the over 13,000,000 existing unemployed people to fill. Furthermore, 50,000 people gave up looking for work and dropped out of the labor force. In fact, while the country’s over-16 civilian population has gone up by almost 1.7 million people over the last year, the labor force has grown by just 274,000 people. Over 1.4 million people have given up looking for work or otherwise left the labor force during the last year, and this is a large part of why the unemployment rate has dropped as much as it has.

With this in mind, the recent unemployment numbers are less positive than they may seem at first. It is undeniable that the country has stopped shedding jobs, but we have not begun to create enough jobs to keep up with population growth and employ the unemployed. We also are not creating enough jobs to employ the people who had given up on looking for work. For a true recovery to occur, we must begin to create jobs at a much faster pace.

Sources:

http://www.bls.gov/news.release/empsit.nr0.htm

http://www.bls.gov/cps/cps_htgm.htm

http://data.bls.gov/timeseries/LNS11300000

Tags: Employment, Unemployment